ITEM 7
YOUR ESTIMATED INITIAL
INVESTMENT
Please note that we do
not offer direct or indirect financing to you for any items. The availability
and terms of financing from other sources will likely depend on factors such as
the availability of financing generally, your creditworthiness, and the policies
of lending institutions.
1. Item. The estimates
in this chart are based on a Snip-its Salon with five cutting stations one wash
station, and an enclosed birthday party room for a facility of approximately
1,300 to 1,600 square feet.
2 Initial Franchise Fee.
As discussed in Item 5, the Initial Franchise Fee is $25,000, but if you are
signing a Franchise Agreement for your second or additional Snip-its Salon
within two years from the date of you entered into your previous Franchise
Agreement with us, the Initial Franchise Fee will be 75% of the then-current
initial franchise fee for new franchisees entering the System. The franchise
fee must be paid when the Franchise Agreement is signed. As also discussed in
Item 5, if you sign a Development Agreement, you will be required to pay us a
Development Fee of either $50,000 or $75,000, depending on the number of
Snip-its Salons you wish to develop. The Development Fee is non�refundable, but
will include the Initial Franchise Fees for each of the Franchise Agreements
you are required to sign in connection with the Development Schedule. The chart
does not reflect the payment of Development Fees.
3.
Prepaid
Rent and Security Deposit. The prototypical Snip-its Salon is between 1,300 and
1,600 square feet in size. The cost per square foot for leasing commercial
space varies considerably depending upon the location and market conditions
affecting commercial property. We estimate the triple-net cost of leasing
commercial space per square foot to be between $20 and $45 annually. The
amounts in the chart reflect our estimate for your payment of prepaid rent
and/or a security deposit in connection with leasing space for the operation of
the Salon, but do not include ongoing rent payments. Landlords will vary in the
amount they charge for a security deposit; from nothing to as much as six
months rent. The high-end amount in the chart reflects our experience in
establishing Snip-its Salons, in which we have not encountered a security
deposit in excess of $10,000. You should consult a real estate broker and/or
other professional in your area to assess the typical leasing costs for your
target market area.
4.
Travel
and Living Expenses while Training. You will need to arrange for transportation, lodging
and food for yourself and for your employees during training. The cost will
depend on the distance you and your employees must travel and the type of
accommodations you choose. The estimates in the chart are per person trained.
We do not anticipate that you will need more than three Highly Trained
Personnel for the operation of the Salon.
5.
Architecture
Fees.
We will provide prototypical drawings for your Salon, but you will need to
commission additional drawings to meet the specifications of the Approved
Location.
6.
Base
Construction and Leasehold Improvements. You will need to construct
improvements of, or "build out," the premises at which you will
operate the Salon. These improvements may include, for example, wiring,
flooring, sheetrock, plumbing, paint, and decor items as well as custom
millwork, salon chairs and furniture, fixtures and equipment which must be
constructed according to our specifications. Costs are likely to vary depending
upon the size, location, and overall condition of the premises, and may be much
higher, if you already have or wish to establish your Salon in an area where
special requirements of any kind (e.g., historical, architectural, or
preservation requirements) will apply.
7.
"Snipification"
of Salon.
The "Snipification" of Salon refers to the major creative,
trademarked and copyrighted decorative elements (including the Characters) of a
Snip-its Salon that you must purchase from us or our designated vendor.
8.
Computers.
Software, and Set-up. The Salon will be equipped with our proprietary
computer point-of sale (POS) system, as well as interactive hair cutting
stations, which will include computer game "play-stations" at each
hair cutting chair. The amount in the chart covers the computer hardware and
software needed for the POS system and the Snip-its play-stations. We will
deliver to you our proprietary POS system which will include all hardware and
software necessary to operate the POS system. In addition to facilitating
purchase transactions, receipt generation and sales tracking, the POS system
also connects directly with the Snip-its portal management system. See Item 11
for details on our proprietary POS system and the hardware and software that it utilizes.
9.
Exterior
Signage.
We require you to purchase an illuminated Snip-its sign for the exterior of the
Salon. The estimate in the chart is based on the cost of our prototype exterior
sign. However, the specific location and/or shopping center where the Salon
will be located may have different requirements and regulations dictating the
size, layout and illumination of the exterior signage for the Salon. You will
be required to abide by these regulations and as a result may experience higher
or lower costs for your exterior signage. Also, this estimate does not include
any other signage beyond our single prototype.
10.
Furniture. The estimate in the chart
above is for all of the fixtures and furniture needed for the Snip-its Salon.
11.
Initial
Inventory & Salon Supplies. The estimate in the chart above is for the supply of
products and supplies (including Proprietary Products) during the initial phase
of operation of the Salon. These items will include the Proprietary Products,
other retail items such as toys and beauty supplies, as well as miscellaneous
Salon supplies for stylists, the front desk and back room. Items of inventory
which you are required to obtain from our designated sources of supply are paid
for at standard prices and terms. All items of inventory which you obtain from
sources of your own choosing are paid for directly to the supplier of those
inventory items at prices agreed upon by you and the supplier. Start-up
inventory of products and supplies will vary based on expected volume of
business and size of storage areas in the building.
12.
Shipping. This estimate is for the cost
of shipping items needed for the Snip-its Salon, such as furniture, fixtures
and the Snipification package. This expense may be higher depending on location
and shipping method.
13.
Professional
Services.
This is an estimate for legal and/or accounting expenses you may incur in the
initial phase of the franchised business.
14.
Grand
Opening Advertising. We will assist you in developing and conducting a
grand opening advertising program. You are required under the Franchise
Agreement to spend a minimum of $5,000 on Grand Opening Advertising, but you
may spend more on this program. The estimate is for the initial promotion and
advertising efforts you will need to make. These efforts must begin within
seven days after the commencement of operations at the Salon, and must be
completed within 90 days after the commencement of operations. Additional
details regarding the grand opening advertising program can be found in Item
11, under the subheading "Marketing."
15.
Additional
Funds.
You will need additional capital to support on-going expenses, such as payroll
and utilities, insurance, lease deposits, licenses, inventory, security, salon
repairs and maintenance, and miscellaneous expenses. The estimate also includes
pre-opening expenses such as organization expenses, and telephone and other
service-related expenses. New businesses often generate a negative cash flow.
We estimate that the amount given will be sufficient to cover on-going expenses
for the start-up phase of the business, which we calculate to be three months.
This is only an estimate, however, and there is no assurance that additional
working capital will not be necessary during this start�up phase or after. 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.
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 Salon 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.
16. Total. The figures
in the chart and the explanatory notes are only estimates. We relied on the
experience of the existing Snip-its Salons when preparing these figures. Your
actual costs may vary considerably, depending, for example, on factors such as:
local economic conditions; the local market for the Salon; the prevailing wage
rate; competition; the sales level achieved during the initial period of
operation; and your management and training experience, skill, and business
acumen. You should review these estimates on your own, preferably with a
business advisor of your own choosing.
