The Costs of Owning a Franchise

Buying a Franchise Can be Costly, so It is Important to Know What Those Costs Are

There are many costs to consider when investing in a franchise. They vary depending on the brand, but the requirements are similar. In addition to the franchise fee, there are other expenses like furniture and equipment as well as professional fees, contractor fees, signage, and inventory. Here is a breakdown of fees you’re likely to encounter on your way to becoming a franchise business owner and also once you’re open for business.

Legal and Accounting Fees

When considering whether or not to buy a particular franchise, a franchise attorney can be a great resource. The attorney will go over the Franchise Disclosure Document (FDD) with you. Although this massive document may be intimidating, an attorney can walk you through the important parts. While there isn’t a set fee to review the FDD, plan for somewhere in the range of $1,500 and $5,000 for this service. As a franchise business owner, it is imperative that you keep impeccable records and files taxes on time, which is where an accountant comes in. The franchisor may provide you with bookkeeping tools, but an accountant can help you keep your business finances in order.

Working Capital

Your franchisor can help you determine the amount of working capital you need to get your business started and running through the first year or so. Depending on the business, it is important to have enough working capital to cover two or three months to as much as two to three years until the business is off the ground. While the franchisor can provide you with an estimate for the working capital needed, you should do your own research too.

Franchise Fee

In general, most franchise fees are between $20,000 and $50,000. Mobile businesses or home-based businesses could be less than $20,000. In addition to covering the costs of training, the franchise fee also covers support and site selection. There are cases in which the franchise fee only covers the cost of having the right to use the franchise’s name.

Build-Out Costs

For brick-and-mortar franchises, build-outs can be expensive. When you’ve decided on a location and the franchise you want to purchase, the franchisor can help you calculate your overall build-out costs. This includes expenses for construction, fixtures, appliances, furniture, signage, and equipment. A benefit of having an at-home business is that there are no build-out costs.

Supplies

It depends on the business when it comes to the supplies that are needed. For example, a restaurant needs appliances, salons need sinks and beauty tools, business offices need copiers, computers, and other supplies. The franchisor should have an estimate for you in regards to how much supplies should cost.

Inventory and Overhead

If you own a retail business or sell a specific product, inventory becomes an expense. While every business is different and has different requirements, you could see costs for inventory go between $20,000 and $150,000. Last but not least, it is also important to factor utilities and payroll into your budget, as you need to keep the lights on and pay your employees.

Travel and Living Costs While Training

While training may be covered by the franchise fee, there are added costs including travel and other expenses that fall on the franchisee. The franchisor provides the franchisee with training, but as your business grows, other employees will also be required to take the training.

When you’re a franchisee, there are numerous fees and expenses. Before making the decision to open a franchise, consult with experts, like franchise consultants and accountants, to make sure opening a franchise is right for you. As always, do your due diligence by looking in your market to see what businesses are in demand, looking online for consulting events, and making sure your finances are in order.

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