Estimated Initial Investment
Excerpt from the Papa Murphy's Franchise Disclosure document issued April 1, 2018
|Expenditures||Estimated Amount or Estimated Low-High Range||When Payable||Method of Payment||To Whom Paid|
|Franchise Fee (1)||$25,000||Upon Signing Agreement||Lump Sum||Us|
|Lease and Utilities Deposits and Payments||$2,500 - $6,000||As Incurred||As Arranged||Landlord, Utilities, Contractors|
|Leasehold Improvements (2)||$67,000 - $166,600||As Incurred||As Arranged||Landlord, Contractors|
|Signs (3)||$5,000 - $10,000||As Incurred Before Opening||As Arranged||Suppliers|
|Stamped Architectural Drawings (3)||$6,300 - $7,800||As Incurred||As Arranged||Architect|
|As Built Survey (3)||$2,000 - $3,700||As Incurred||As Arranged||Suppliers|
|Opening Package (including Equipment and Supplies), décor, cabinets, point-of-sale system and smallwares (3)(4)||$116,900 - $176,700||As Incurred Before Opening||As Arranged||Suppliers|
|Miscellaneous Development Service Fees (4)||$0 - $1,270||As Incurred||As Arranged||Us|
|Inventory (5)||$5,000 - $7,000||As Incurred Before Opening||As Arranged||Suppliers|
|Initial Marketing Fees and Expenses - 6 months||$30,000||As Incurred and Within 180 Days After Opening||As Arranged||Suppliers|
|Franchise Premises Rent (6) – 3 months||$2,700- $15,385||As Incurred||As Arranged||Landlord|
|Materials and Supplies||$500 - $2,000||As Incurred Before Opening||As Arranged||Suppliers|
|Operations Training and Foundations Class (7)||$0 - $500||Prior to Training||As Arranged||Us|
|Enterprise Solution Training (7)||$400||As Incurred||As Arranged||Suppliers|
|Travel and Living Expenses While Training (In-Store Experience, Operations Training, Foundations Class and Enterprise Solutions Training) (7)||$3,395 - $12,150||During Training||As Arranged||Airlines, Hotels, and Restaurants|
|Employee Training (7)||$500 - $1,500||As Incurred||As Arranged||Employees|
|Insurance - 3 months||$375 - $1,175||As Incurred Before Opening||As Arranged||Insurers|
|Bookkeeping/ Payroll Service (8) 3 months||$1,500 - $1,600||Monthly||As Arranged||Approved Vendor|
|Additional Funds, Working Capital, and Miscellaneous Expenses (9) - 3 months||$10,000 - $50,000||As Incurred||As Arranged||Employees, Suppliers, Utilities|
|TOTAL ESTIMATED INITIAL INVESTMENT||$279,070 - $518,780|
- You must pay us a non-refundable Franchise Fee of $25,000 when you sign the Franchise Agreement for the purchase of your Franchised Store. In the event an Area Development Agreement is entered into, you are required to pay a non-refundable Area Development Fee determined by the number of Franchised Stores required to be opened under the Area Development Agreement. If you sign an Area Development Agreement and pay an Area Development Fee, there will be no Franchise Fee for your first Franchised Store and a reduced Franchise Fee as described in more detail in ITEM 5. If you sign an Area Development Agreement as part of an Area Development Incentive Program and pay an Area Development Fee, there will be no Franchise Fees for each Franchised Store required to be developed under the Area Development Agreement. In the event a Multiple Store Commitment Letter and Amendment to Franchise Agreements are entered into, you are required to pay a non-refundable Multiple Store Fee determined by the number of Franchised Stores required to be opened under the Multiple Store Commitment Letter.
- This figure does not include any tenant improvement allowance received from your landlord or any free-standing buildings or exterior renovations. The average cost for leasehold improvements for our CREATE store format was $75 per square foot. The costs vary widely by the condition of the space, the geography and the experience of the contractor. You may be required to select your general contractor from a list of vendors we have pre-approved. Payments for the leasehold improvements are made to suppliers, not us. The time and method of payment is determined by the contract between you and the supplier.
- As further described in ITEM 5, if we require you to enter into a Development Billing Agreement with us, you will reimburse us for amounts we pay third party vendors for development and build-out of the Franchised Store. We will deduct these costs from your bank account via ACH. Such purchases are a pass-through expense. (See Exhibit M.)
- You must purchase an opening supply package from approved vendors, if we so specify. The opening package shall include all equipment and supplies necessary to commence business at the Franchised Store. The time and method of payment is determined by the contract between you and the supplier. You are required to have access to a facsimile machine, telephone, point-of-sale computer system and email access, business-class broadband Internet connection (digital service line (DSL), cable or wireless) and reliable transportation. (See ITEM 11.)
We may charge you a fee for miscellaneous development services as follows: (i) if we permit you to build or relocate your Franchised Store using used equipment, we may charge you a fee to cover additional time required to create a store plan incorporating specific used equipment; (ii) if you modify the plans for your Franchised Store after they have been sent to the architects for completion of construction documents, you will be responsible for any fees resulting from the modification of the plans; or (iii) if you require more than one set of revisions to your store plan.These costs reflect the cost of building our latest store format called the “CREATE Store.” The numbers are based on the actual costs incurred in building approximately 87 CREATE Stores across various geographies. This store format has optional upgrades available. The low range costs reflect few or no upgrades, as well as the highest condition of the space and the lowest cost geography. When estimating the cost of building your Franchised Store, the number of upgrades, space condition and geography should be considered.
- Inventory is required as outlined in the Operations Manual. Payments for the inventory are made to suppliers, not us. The time and method of payment is determined by the contract between you and the supplier.
- You are solely responsible to obtain and pay for a location for the franchise (“Franchise Premises”). The cost of purchasing or leasing a Franchise Premises varies with its location and size. The average size of a Franchise Premises built in 2017 was 1,446 square feet and ranges from 1,102 to 2,000 square feet. The average cost for rent for a Franchise Premises opened in 2017, including operating costs, was $34,797 per year and ranges from $10,800 to $61,538 per year. The range for Franchise Premises rent does not include two stores opened in 2017 in Hawaii, which were excluded because occupancy costs in Hawaii are not a typical representation of mainland U.S. occupancy costs. The range for Franchise Premises rent identified in this chart reflects our best estimate of the total rent you will pay for the first three months for your Franchised Store.
- Training may take up to five and one-half weeks. We may lengthen, shorten or restructure the contents of this program at any time. Operations Training and Foundations Class will be provided at no cost to up to two individuals that have signed the Franchise Agreement. The cost of Operations Training and Foundations Class is $500 for each franchise owner beyond two or each non-owner attendee. Foundations Class includes completion of ServSafe® Manager certification or an equivalent state-specific food safety certification. If you do not pass the ServSafe examination, you must re-take the test on your own and at your expense. The cost of the course materials and examination varies depending on your state and local requirements. Enterprise Solution Training is conducted by our Enterprise Solution partner, NCR Corporation. The cost of Enterprise Solution Training is currently $400 per entity for up to two participants. Additional participants may attend at a cost of currently $400 for up to two participants. If you are not located near a designated Papa Murphy’s training store (“Training Store”) or an NCR certified training site, travel, accommodations, meals and other expenses may apply to all of the training period. These amounts are estimates and can vary widely.
- We require you to retain an approved bookkeeping and payroll service for the first year of operation of the Franchised Store. We reserve the right to require you to retain and use a human resources outsourcing firm to provide general human resource support, including but not limited to job description services, human resource compliance support services, management and supervisor training, and payroll services beyond your first year of operation of the Franchised Store.
- You will also have other miscellaneous expenses involved in establishing a business. These expenses vary greatly, and we have estimated a minimum of $10,000 and up to 50,000. They may include attorney fees, license fees, deposits, sales tax bonds (where required), recruiting expenses, employee wages, and supply expenses. You will pay your own legal and other expenses in connection with the review and negotiation of your lease. You must pay all taxes required by local, state or federal laws related to the services furnished or used in connection with the operation of a Papa Murphy’s Franchised Store. You must obtain all permits, certificates or licenses necessary for the full and proper conduct of the Franchised Store. We also recommend that you have direct access to a minimum of $10,000 for working capital during the first three months of operation. This row estimates your initial three-month start-up expenses, less any revenue earned by you. This row does not include any salary or reimbursement of personal expenses paid to you.
- If you participate in the Pre-Sale Development Program, we may offer you assistance in the negotiation and execution of the lease or sublease for the Franchise Premises. You must pay for outside legal expenses incurred for such assistance in an amount not to exceed 5,000.
- If you participate in the Pre-Sale Development Program and we must pay the landlord an assignment fee related to the assignment of the lease to you, you must pay that fee directly or reimburse us if we pay that assignment fee. We estimate that the amount of the lease assignment fee will vary based on the complexity of the transaction.
- If you participate in the Pre-Sale Development Program, and the Lease provides that we will not be released from our obligations under the Lease, we may charge you a fee in consideration of our accepting such contingent liability as part of the Lease assignment.
- Under the Pre-Sale Development Program, we also may offer assistance with the development and build-out of your Franchised Store. Depending on the level of assistance we provide, you may be required to pay us directly for the following items presented in ITEM 7: (i) Permitting Fees; (ii) Lease and Utilities Deposits and Payments, including reimbursement of any security deposit we paid to the landlord under the Prime Lease (as defined in ITEM 10 below), (iii) Leasehold Improvements, (iv) Signs, including exterior signs; (v) Stamped Architectural Drawings, and (vi) Opening Package (including Equipment and Supplies), décor, cabinets, point-of-sale system, digital menu boards, general lighting and smallwares. We anticipate that the investment ranges for these categories will remain the same.
These figures represent our estimates based upon actual expenses in 2015 and our experience and the experience of our franchisees. We do not guarantee that you will not have additional and different expenses than those we have identified in this table. Your actual costs will depend upon many factors, including, how well you follow our directions and suggestions, your business skill and experience, local economic conditions, the local market for your products, the location and condition of your Franchise Premises, the prevailing wage rates, competition, and your sales levels during the initial period. You should review the figures carefully with a business advisor before making any decision to purchase the Franchised Store or make any expenditures.You should understand that entry into any business venture necessarily involves some unavoidable risk of loss or failure and that the purchase of a Papa Murphy’s Franchised Store is a speculative investment. Unforeseen circumstances or expenses may require significant investment beyond that outlined in this Disclosure Document, and may be required to succeed. There is no guaranty against possible loss or failure and the most important factors in the success of a Papa Murphy’s Franchised Store are your business, marketing, administrative, judgment, operational and other skills.Except as provided in ITEM 5, any fees paid to us are not refundable. Amounts paid to any third parties may be refundable, depending upon the contracts between them and you.We do not finance any of these initial expenses. The availability and terms of financing will depend on various factors including the availability of financing generally, your credit worthiness, security available to you, lending institution policies concerning the type of business by you, and other comparable elements.