Practical guide
These points support an initial assessment. The decisive legal, tax, financial and operational questions depend on the business, the people involved and the chosen transaction structure.
Calculate the full investment through break-even
List every use of funds from initial assessment until the unit operates with stable cash flow: entry fee, company formation, advice, deposits, premises, construction, equipment, stock, software, training, opening campaign and working capital. Include the franchisee's personal income requirement and a reserve for delays or lower sales. Separate payments to the franchisor from third-party costs and show VAT and payment dates. A single total can hide a liquidity gap if major invoices fall due before revenue or financing becomes available.
- inventory all opening and ramp-up expenditure
- separate system fees from third-party costs
- schedule cash needs and include a prudent reserve
Separate entry fees, royalties and marketing contributions
The initial fee may cover the licence, training and opening support; ongoing royalties may be fixed, percentage-based or a combination; marketing funds should finance defined system activity. Ask for the calculation base, minimum, due date, indexation and treatment of refunds or discounts. Add required software, purchasing arrangements, audits, renewals and optional services that are practically necessary. Compare systems over several years rather than ranking them by the initial fee alone, and connect each payment with the service, right or support actually received.
- document the basis, frequency and duration of each charge
- identify mandatory costs outside headline royalties
- compare total cost and services across the contract term
Test equity, debt and liquidity under a slower start
Financing must cover both the investment and early operating losses without leaving the unit short of cash. Calculate how much equity remains after each payment and how stock, working capital and contingency will be funded. System forecasts are a reference, not a guarantee. Model slower sales, lower margin and higher fit-out or staffing costs. Debt service, royalties, rent and the franchisee's remuneration need to remain affordable together. Coordinate lender approval with franchise and lease deadlines so the candidate is not contractually committed before essential funding conditions are clear.
- track equity and liquidity after every major payment
- model conservative sales, margin and timing assumptions
- align finance approval with franchise and lease commitments
Verify the practical value of system support
Ask what training, site selection, opening support, marketing, purchasing, software, innovation and operating advice include in practice. Speak with several comparable franchisees about response times, hidden costs, actual workload and the quality of assistance, while respecting their independence. Financial examples should state location, maturity, owner involvement and period because a mature flagship unit is not directly comparable with a new site. The value of support depends on whether it improves execution and reduces risk, not on the length of the services list.
- connect each recurring payment with verifiable support
- speak with franchisees in genuinely comparable units
- assess support capacity during both launch and normal operation
Include renewal, transfer and exit in the cost model
Investment and depreciation should fit the franchise agreement and lease terms. Review renewal criteria, refurbishment requirements, transfer approvals, post-term competition restrictions, de-branding, data return, stock, guarantees and closure costs. A unit can be profitable while operating yet unattractive if a large reinvestment is required before an uncertain renewal. Model sale to another franchisee, non-renewal and early termination as well as the successful base case. Understand which assets retain value outside the system and which depend entirely on continued franchise rights.
- align agreement, lease and investment recovery periods
- quantify renewal, refurbishment and de-branding costs
- review conditions for sale or transfer to another operator
Sources and further information
Frequently asked questions
How much does it cost to open a franchise in Switzerland?
There is no general amount. It depends on the concept, premises, fit-out, equipment, stock, region, staffing and working-capital period. Ask for a complete investment range and the assumptions behind it, then prepare an independent budget with contingency and personal income needs. The entry fee is only one component. A credible comparison looks at cash required before break-even and the ongoing charges throughout the intended agreement term.
What is normally included in a franchise entry fee?
It may cover initial licence rights, training, manuals, site or opening support and access to the system, but inclusions vary. Request a written breakdown and identify third-party costs, travel, accommodation, software, equipment and launch marketing separately. Also ask whether any part is refundable if a site, finance or approval condition fails. The fee should be assessed together with the franchisor's actual preparation and support, not treated as proof that the concept is commercially sound.
How are franchise royalties calculated?
Royalties may be a percentage of gross or net sales, a fixed amount, a minimum charge or a combined model. The agreement should define the calculation base, exclusions, reporting, audit rights, VAT, payment date and indexation. Model royalties at different sales levels because a minimum may be significant during ramp-up while a percentage becomes more costly as the unit grows. Compare the charge with the support and rights supplied over the same period.
Can a franchise be financed with a bank loan?
Potentially, but approval depends on the candidate, concept, location, equity, security, business plan and expected repayment capacity. A known brand does not guarantee financing or profitability. Prepare a sources-and-uses schedule, conservative cash-flow model, franchise documents, lease assumptions and evidence of available equity. Keep enough liquidity for operating needs after opening. Do not sign unconditional obligations on the assumption that a lender will later approve the entire funding requirement.