Your Estimated Initial Franchise Investment
|Type Of Expenditures||Low Estimate||High Estimate||Method of Payment||When Due||To Whom Payment is to be Made|
|Initial Fee1||$15,000||$50,000||Lump Sum||After Signing Franchise Agreement||Aaron's|
|Real Estate2||3,800||20,000||As Arranged||As Arranged||Landlord|
|Leasehold Improvements3||2,000||275,000||Progress Payments||As Arranged||Landlord or Contractors|
|Equipment Lease4||50||80||Direct Withdrawal||Weekly||Aaron's|
|Computer Equipment4||11,800||15,000||As Arranged||Before Opening||Aaron's and Vendors|
Equipment and Fixtures5
|12,500||20,000||Financed or As Incurred||As Arranged||Aaron's and Vendors|
|Delivery Vehicle6||1,500||7,600||As Arranged||As Arranged||Vendor or Lessor|
|Insurance7||6,500||11,000||Down Payment||Before Opening||Insurance Companies|
|Travel and Living Expenses While Training8||500||3,800||As Arranged||Before Opening||Suppliers of Transportation, Food and Lodging|
|Pre-Opening Advertising9||2,000||5,000||As Arranged||Before Opening||Vendors|
|Grand Opening Advertising9||0||15,000||Direct Withdrawal||Monthly||Aaron's|
|Initial Inventory10||120,000||160,000||As Arranged||Before Opening||Vendors|
|Additional Funds 6 to 15 Months11||100,000||200,000||As Incurred||As Incurred||Employees, Vendors, Suppliers and Utilities|
1. As discussed in Item 5, the Initial Fee will range from $15,000 to $50,000 based on actors including the Base Population surrounding the Designated Location, projected population growth, competition and demographics of the area surrounding the Designated Location, and other factors Aaron’s deems relevant. Also, as discussed in Item 5, if you sign a Development Agreement, you will be required to pay to Aaron’s a Development Fee in an amount equal to 50% of the Initial Fee for the total number of Aaron’s Stores that you must establish under the Development Agreement. The chart does not reflect the payment of Development Fees.
2. Aaron’s is unable to estimate the total cost of purchasing suitable premises for the Store or the amount of any down payment that would be required. The figures above assume that you will rent the premises for the Store and, thus, do not include the cost of acquiring real estate or constructing a building. The amounts in the chart above are monthly rental estimates. A Store will require 6,000 to 12,000 square feet of floor space. Rental costs in a striptype shopping center or free-standing building vary considerably, depending on the location and local market conditions. Aaron’s estimates that the annual cost per square foot will range from $5.00 to $15.00(and possibly higher in select markets). Aaron’s also estimates that the annual cost per square foot for common area maintenance, real estate taxes, and insurance will range from $1.50 to $5.00 and possibly higher in selected markets. These figures do not include security deposits of one or twomonths’ rent, or utility deposits, which may be required.
3. You must install flooring, counters, wiring, display shelving, painting and decor items that comply with the specifications in the blue-lined floor plans that Aaron’s provides. The cost will vary depending on the condition of the premises, square footage, zoning requirements, your ability to negotiate with your landlord, and the extent to which your landlord funds leasehold improvements. You must purchase from Aaron’s and install the Aaron’s equipment package consisting of, among other things, price tags, price tag holders, acrylic advertising stands, vendor logos and interior signage and other items related to the operation of the franchised business, which Aaron’s estimates will cost approximately $7,000. Aaron’s is contemplating revising the prototypical Store model, and the estimates in the chart above include the leasehold improvement costs associated with the contemplated revised Store model.
4. Aaron’s will purchase exterior signs, which Aaron’s estimates will vary in cost from $3,000 to $30,000, and lease the signs to you for the first 5 years of the Franchise agreement. You may prepay the 5-year lease. Certain lease terms are described in Item 10. After the initial 5-year term, you can renew the sign lease for $1 per week. Aaron’s will either lease the computer equipment package to you at your request, or require you to pay for the computer equipment package, which Aaron’s estimates will cost about $11,800 to $15,000. If the computer equipment package is leased to a franchisee, Aaron’s will then lease it to you per the terms of the Equipment Lease (Exhibit B to the Franchise Agreement) over the initial 3-year term of the Franchise Agreement. You may be required to upgrade your equipment on expiration of the 3-year lease, or, if purchased, you may be required to pay for the upgrade of your equipment every 3-4 years.
5. You must purchase or lease equipment, such as office furniture, a telephone system, security equipment, file cabinets, calculators and “off the shelf” software that comply with the specifications in Aaron’s Pre-Opening Manual. As described in Item 5, you must purchase from Aaron’s a designated equipment package when you sign the Franchise Agreement. You also must lease computer hardware that meets Aaron’s specifications from Aaron’s.
6. You must purchase or lease at least one delivery vehicle that meets the specifications in Aaron’s Confidential Operating Manuals before opening the Store. The estimated low figure is for the security deposit on a leased vehicle, and the estimated high figure is for a down payment to purchase a vehicle.
7. You must obtain the insurance required under Section 7.7 of the Franchise Agreement. Insurance cost and method of payment may not be uniform for each franchisee. Premiums will differ depending on the insurer, the location of the Store, your prior loss experience, insurer’s adjustments, insurance requirements of applicable law and other factors. The figures above are Aaron’s best estimate of the initial payment for the minimum coverage required. These estimates are subject to change depending on the status of the economy at any given point in time. Aaron’s estimates a total annual insurance cost ranging from about $6,500 to $11,000. You should include Aaron’s as an additional insured on your policies except for Workers Compensation.
8. As described in Item 11, Aaron’s will provide a tuition-free initial training program at Aaron’s headquarters for you and your employees whom Aaron’s haspreviously approved. The chart reflects the estimated cost for these approved trainees to attend the initial training program. You must arrange and pay for all transportation, lodging, meals, and wages for yourself and any of your employees that receive training. These costs will vary depending on the distance traveled and the type of accommodations. The cost may be less if you already have received training for the operation of another Store.
9. Aaron’s will assist you in developing a pre-opening advertising campaign which must be implemented within the time frame Aaron’s specifies before your Store opens, as described in Section 6.11 of the Franchise Agreement (“Pre-Opening Advertising”). In addition, Aaron’s may require you to spend up to $15,000 on advertising and promotional programs in your Territory during the first few months after your Store opens (the “Grand Opening Event Advertising”). Your advertising costs will vary depending on your market and the type(s) of advertising used. Although may establish a financing program for the Grand Opening Event Advertising for qualified Aaron’s franchisees. If Aaron’s makes such a program available, Aaron’s may lend Aaron’s franchisees up to $15,000 per Store, depending on the Population Base of the Designated Location, under the terms of a promissory note, the form of which is attached to the Disclosure Document as Exhibit J.
10. You must have sufficient capital in cash and/or a line of credit to stock your showroom and warehouse with products for lease and sale. Costs will vary depending on the size of the Store. You may be able to obtain financing for your inventory purchases from SunTrust Bank under the arrangement described in Item 10, or under arrangements with other lenders. As a Store matures it will potentially need to increase its inventory credit line. Aaron’s does not guarantee that an increased credit line will be approved. All increase requests will be evaluated on a case-by-case basis and must be approved in writing by Aaron’s.
11. You must have sufficient capital in cash and/or a line of credit to cover employee salaries, floor plan payments on product re-orders of about $3,000 to $80,000 each month, and general operating expenses. The figures above are Aaron’s best estimate for covering your ongoing expenses for about 6 to 15 months. The estimate does not include a salary or draw for you, your owners, or principals. The estimate also does not include Royalty Fees due to us. New businesses often generate a negative cash flow. Your costs will vary depending on how rapidly your business grows. If you obtain financing for your inventory purchases, the amount of your investment also may depend on the terms of certain covenants in your financing documents, which may require you to maintain specific debt to equity or other ratios. This is only an estimate, and there is no assurance that additional working capital will not be required during the start-up phase or afterwards. Your credit history could impact the amount (and cost) of funds needed during the start-up phase. If you have no credit history or a weak credit history suppliers may give you less favorable lending and payment terms, which might increase the amount of funds you will need during this period. You will need to have staff on-hand before opening to prepare the Store for opening, for training, orientation, and related purposes. You should review these figures carefully with a business advisor before making any decision to purchase the franchise. You should take into account the cash outlays and probable losses that you may incur while you are trying to get established. Extensive start-up costs may be involved, depending upon your circumstances.
12. In preparing the figures in this Item 7, Aaron’s relied on the experience of existing Aaron’s-owned Stores and franchised Stores. As of December 31, 2013, Aaron’s and its franchisees operated about 2,035 Stores with 51 of those being in Canada. These figures are only estimates. Your cost may vary considerably depending on, among other factors: local economic conditions, the local market for the products Aaron’s officers, the length of time it may take to build-out and open your Store, prevailing wage rates, competition, the sales level achieved during the initial period of operation, and your management and training experience, skill, and business acumen.