Common Franchise Costs
Every franchise has its financial requirements, so the costs to start a franchise are different for every franchise company. In most cases, you will be required to pay a franchise fee, all build-out costs for your location (including furniture, fixtures, and equipment), professional fees, contractor fees, signage, and inventory. The franchisor does not contribute to any of these costs. You must also make sure you have enough working capital not just to open your business, but to stay in business until the business is self-supporting.
Every franchise company will require you to pay an initial franchise fee. Most franchise fees are between $20,000 and $50,000. In some cases, you may see franchise fees less than $20,000. These franchises with lower franchise fees are usually home-based or mobile franchises.
The franchise fee usually covers the cost of training (not including travel expenses), support and site selection. The items or benefits that are included in a franchise fee are different for every company. In some cases, the franchise fee is just an upfront licensing fee for the rights to use the franchise name. Be sure to investigate exactly what you are getting in return for the franchise fee.
Legal and Accounting Fees
Anyone considering buying a franchise should consult with a qualified franchise attorney. Your franchise attorney will help you review the FDD (Franchise Disclosure Document) as well as the franchise agreement. There is no one set fee to review these documents. It is safe to say that you should budget anywhere between $1,500 and $5,000 to pay to a franchise attorney. The amount of time you spend with your attorney will determine the overall price.
It's important you start your record-keeping right from the start, so you should also work with a qualified accountant. Your franchisor may provide you with software or a chart of accounts, and your accountant will help you set up your books and records. Your account can also help you determine how much working capital you will require.
Working capital is the amount of day-by-day cash available to a business. Depending on the type of business, it is important that the working capital cover a particular length of time, ranging from as little as two or three months to as much as two to three years until the business is in full swing.
The franchisor typically provides an estimate of the amount that is needed, but you should do your thorough research to make sure your calculation is based on your market rather than the system average, which may not be accurate for your location.
Build-out costs vary wildly between franchises. Once you have decided on a franchise finish finding a location (the franchisor will need to approve the location), you will determine an estimate from the franchisor of your overall build-out costs.
It will include all furniture, fixtures, equipment, and signage. Other considerations include professional fees for civil and architectural drawings, zoning compliance, contractor fees, decor packages, security, deposits and insurance, and landscaping.
If you decide to buy a home-based franchise, there are no build-out costs involved. You may have other costs for software applications or computers, but sometimes these items are included in the franchise fee.
All new businesses require you to have the proper supplies to run your business. Whether it is a food franchise that offers plastic utensils (small wares) to its customers or a service-based franchise that goes through a lot of office supplies, every franchise needs the proper supplies to do business. Your franchisor should be able to give you an accurate list or estimate of what is needed to open your franchise.
If you are buying a retail franchise or any other franchise where you are selling a specific product, you must stock up on inventory. Once again, every franchise is different and has different requirements. You may be required to buy between $20,000 and $150,000 worth of inventory.
Travel and Living Expenses While Training
Franchisors will routinely provide training to the franchisee and, more often than not, at least one other employee besides yourself will be required to attend and successfully complete the training.
Although the training itself should be covered by the franchise fee, the franchisee is usually responsible for the training-related associated travel and living expenses.
With some franchisors, training can last only a few days or one or two weeks, but in some more complex franchise systems, the training may extend for many months, with classroom training followed by online webinars or classes.