What is the relationship between the Baya Bar initial fee (Item 5) and the ongoing obligations of the franchisee (Item 9)?
Baya_Bar Franchise · 2024 FDDAnswer from 2024 FDD Document
ITEM 5 INITIAL FEES
Franchise Agreement: You must pay us an initial franchise fee of $35,000 for the right to establish a single Baya Bar Shop under a Franchise Agreement. This fee is used in part for working capital and in part for profit. If you are purchasing your second Shop, the initial franchise fee will be reduced to $30,000, and if you are purchasing your third or later Shop, the initial franchise fee will be reduced to $25,000. The initial franchise fee is imposed uniformly on all franchisees.
If (a) you fail to complete the pre-opening training program to our satisfaction, after having given you the opportunity to re-take our pre-opening training program at your expense or (b) we conclude, no more than ten days after you complete the pre-opening training program, that you do not have the ability to satisfactorily operate your Franchised Business, then we have the right to terminate your Franchise Agreement. If we terminate your Franchise Agreement, we will refund your initial franchise fee less any out-of-pocket costs we have incurred. You must sign any documents we require, including a confidentiality agreement and general release, before any money will be refunded to you. The initial franchise fee is not refundable under any other circumstances.
Multi-Unit Development Agreement: If you and we agree that you will develop and operate multiple Baya Bar Franchised Businesses, then you will pay to us a development fee equal to 100% of the initial franchise fee for the first Shop to be developed, plus 50% of the reduced initial franchise fee for each additional Shop you commit to develop under the MUDA. For example, if you commit to develop three Shops, the development fee is calculated as $35,000 + (50% of $30,000=$15,000) + (50% of $25,000=$12,500) = $62,500.
What This Means (2024 FDD)
According to the 2024 FDD, Baya Bar's initial franchise fee and the franchisee's ongoing obligations are related in that the initial fee provides the franchisee with the right to operate a Baya Bar shop, while the ongoing obligations, such as royalty fees and marketing contributions, ensure the continued operation and support of the Baya Bar system. The initial fee is a one-time payment, whereas the ongoing obligations are recurring payments or actions required throughout the term of the franchise agreement. Item 23 clarifies that the initial franchise fee is allocated to distinct performance obligations outlined in the franchise agreement, separate from territory rights and intellectual property.
The initial franchise fee for a single Baya Bar shop is $35,000, which may be reduced to $30,000 for a second shop and $25,000 for a third or subsequent shop. This fee grants the franchisee the right to establish and operate a Baya Bar shop. The initial fee is used, in part, for working capital and profit. The FDD states that the initial franchise fee is generally non-refundable, but a refund (less out-of-pocket costs) may be available if Baya Bar terminates the agreement because the franchisee fails to complete the pre-opening training program satisfactorily or if Baya Bar concludes the franchisee cannot satisfactorily operate the business.
One of the ongoing obligations of the franchisee is a marketing fund contribution, which is 1% of the franchisee's gross revenue, collected weekly. This contribution supports the promotion of the Baya Bar system through advertising, marketing, and publicity efforts. The franchisee must also promptly pay all sums owing to Baya Bar and its affiliates, which can include damages, costs, and expenses, including reasonable attorneys' fees, incurred by Baya Bar as a result of any default by the franchisee.
In summary, the initial franchise fee provides the franchisee with the right to operate a Baya Bar shop, while the ongoing obligations ensure the continued support and promotion of the Baya Bar system. The initial fee is a one-time payment, while the ongoing obligations are recurring payments or actions required throughout the term of the franchise agreement. The initial fee revenue is allocated to performance obligations, and a marketing fund contribution of 1% of gross revenue is collected weekly.