Franchise Update Magazine Issue IV, 2015 | Page 65
to pay an up-front fee! A good way to do
this analysis is to visit the major business
city in a country in advance.
• Tax factor. Look at the tax implications of signing an international franchise
agreement. Withholding taxes before you
can bring fees and royalties home can be
as high as 30 percent of what you are due
from the franchisee. This is in addition to
your home-country taxes.
• Franchise agreement. You will need
a separate international franchise agreement. This is an investment that can be used
in multiple countries. Have this prepared
in advance of starting negotiation with a
candidate. You should be able to use the
same agreement with only local changes
to ensure the agreement is enforceable in
the country.
• Development cost. Estimate the
up-front cost of finding, evaluating, negotiating with, and signing a candidate in
a given country. There will be communi-
cation, staff time, trademark registration
costs, legal agreement costs, travel, training,
and other costs in the first couple of years
your new licensee operates in a country.
And there will probably be few units producing royalties at first. What is the cost
for this process from the time you get the
lead until they are opening and operating
enough units to produce a good royalty
stream? It can be US$250,000, so keep
this in mind when you set your initial fees.
Conclusion
Good news on international lead sources:
there are many established sources. One of
the very best (and least expensive) is to add
an international landing page to your company website with a link for international
candidates to contact you. There also are
numerous international franchise expos.
Be forewarned that these are often focused
on single-unit franchisee candidates, not
area licensees or master franchisees. The
IFA and U.S. Commercial Services have
two to three franchise trade missions to
countries each year, which generate large
numbers of leads. The U.S. Commercial
Service offers “Gold Key” services to individual franchises in some countries to
help you find candidates. And numerous
international websites market U.S. franchise brands seeking leads.
The purpose of this article is not to
scare the U.S. franchisor from going global,
but rather that it’s good to do so with your
eyes wide open—and to understand why
an international lead requires more work
than a domestic one. n
William Edwards is CEO, Michelle McClurg is COO, William Gabbard is senior
vice president, and Shanna Aldridge is
director at Edwards Global Services, Inc.
Contact Edwards at 949-375-1896, [email protected], or read his blog at
edwardsglobal.com/blog.
Processing a U.S. franchise lead vs. processing an international license lead
United States
International
Candidate type
Individual
Company with a proven track record of business success,
available management team, and strong financial
capability
License type
Single or multiple unit
Multi-unit area license or country master license
Investment
US$100,000 to $1 million
US$500,000 to $15 million
Time to closure
3 to 9 months
6 months to 3 years
Manpower
required
One U.S. broker person
U.S. franchisor person, international consultant, third-party
information provider
Legal
Disclosure to a U.S. FDD
40 countries have di