Beyond the Binder: Item 6 - Other Fees

If Item 5 tells you what it costs to get in the franchise, Item 6 shows you what it’ll cost to stay in.

Many franchisees overlook this section, focusing only on the franchise fee and buildout costs. But Item 6 is where the real financial obligations stack up, often in the form of recurring fees, vendor requirements, and surprise costs buried under broad labels.

📘 What Is Item 6?

Item 6 of the Franchise Disclosure Document (FDD) discloses all other fees you’ll be required to pay to the franchisor or its affiliates, after you’ve signed the agreement and launched your business. This includes:

• Royalties (often based on gross sales)

• Brand or marketing fund contributions

• Technology or POS system fees

• Training fees beyond the initial session

• Audit and inspection charges

• Renewal, transfer, and termination fees

• Late fees, fines, and penalties

These fees are often ongoing and can have a significant impact on your profitability, even if your top-line revenue looks strong.

🔍 What Must Be Disclosed in Item 6?

The FTC Franchise Rule requires franchisors to disclose:

• Each recurring or one-time fee you must pay during the franchise term

• Who the fee is paid to (franchisor, affiliate, or third-party)

• How and when the fee is calculated and collected

• Whether the fee is refundable (almost never)

Item 6 must also include a footnote referencing the section of the franchise agreement where each fee is found. This is crucial for cross-checking consistency between the FDD and the contract you’ll be bound to.

⚠️ Why It Matters

Item 6 gives you a preview of your monthly cash obligations, regardless of how your business is performing.

Here’s why it’s critical:

• A 6% royalty + 2% ad fund + $500/month tech fee adds up fast

• Hidden or poorly explained fees erode margins

• Fees owed even during closure or emergencies could cripple your ability to recover

• If fees aren’t linked to actual support or value, they’re just drains on your bottom line

Some franchisors use these fees to offset weak royalty revenue or make money through mandatory vendors. If you don't fully understand them before you sign, you may be locking yourself into a system that profits even if you don't.

🧠 Real Due Diligence Tips

Here’s how to read beyond the binder:

1. Add Up the Monthly Hit
   Create a spreadsheet modeling your monthly obligations. What’s the real cost of operating under the brand once all Item 6 fees are factored in?

2. Ask Franchisees About "Surprise Fees"
   Current and former franchisees will tell you which charges hit hardest, especially ones that weren’t clearly explained upfront.

3. Cross-Check the Franchise Agreement
   Don’t rely solely on the FDD summary. Look at the contract language. Are there catch-all clauses allowing the franchisor to add or raise fees at will?

4. Evaluate the Value
   Are you getting what you’re paying for? If there’s a 2% brand fund fee, ask how it’s spent. If there’s a POS fee, ask whether you could get the same system cheaper elsewhere.

5. Check for Double Dipping
   Are you being charged both a tech support fee and required to use the franchisor's proprietary software? Watch for layered costs that benefit the franchisor’s affiliates.

✅ Bottom Line

Item 6 is where your margins go to live or die.
It’s not just about what you pay, it’s about what you’re forced to keep paying, whether your business is thriving or barely surviving.

If a franchisor is vague, inflated, or overly broad in describing these fees, it’s a red flag. Remember: fees should fund support, not siphon profits.

Before you sign, know exactly who gets paid, how much, and for what.
If you can’t trace the value, you’re the one getting charged for someone else’s benefit.

The next edition of Beyond the Binder will cover Item 7: Estimated Initial Investment. We will also be including BONUS real-world data from an existing franchise. Don’t miss it!