Franchise deposits

It is becoming more common for franchisors to ask for a deposit to move forward with your application and engage in discussions with you. This can be the cost of the franchisee fee or part of the fee; the franchisor should be able to justify to you why they need a deposit.

For the franchisor, the main purpose of a franchise deposit is to identify those who are serious about the franchise from those who are just casually enquiring. This is to prevent the franchisor wasting time sourcing a territory etc for those who are maybe not as serious about buying their franchise as they make out. A franchise deposit also permits the franchisor to disclose confidential information on their franchise to you.

From your point of view, paying a franchise deposit allows you to safeguard a specific territory that you are interested in for a period of time that allows you to do your due diligence on the franchise.

If you do go ahead then the deposit will be subtracted from your balance owed. Make sure that you get this in writing from the franchisor before paying the deposit.

Not all deposits are refundable (some are refundable, part refundable or not refundable) so you need to ask the franchisor initially if the deposit is refundable, and if not, then you need to seriously consider if you are serious about the franchise opportunity because you could lose a lot of money.

If the deposit is refundable, ask the franchisor to put this in writing and to state if there are any circumstances in which the deposit may not be refunded. Doing this will prevent you having any problems getting your money back if you do not decide to buy the franchise.

Most ethical franchisors will offer a part-refundable or fully refundable deposit.

If a franchise deposit is taken, make sure that you know the time period you have for making a decision. Again, this should be put in writing.