How Much Does a Franchise Cost

How much does a franchise cost? Of course the cost of obtaining and starting a franchise depends on several variables. For instance, the type of industry, size and location are some of the differentiating factors. However, there are some basics that you could keep in mind if you are contemplating becoming a franchisee.

First of all, you will usually have to pay a franchise fee, which averages somewhere between $20,000 and $30,000. However, the fee could be less than $10,000 for businesses such as mobile and home-based businesses, or in some cases could possibly cost $100,000 or more. A few examples of these more expensive franchises include building maintenance businesses and some types of athletic training facilities.

Since you are gaining the advantage of taking part in an already recognizable business name, and usually ongoing support from the franchisor as well, franchisors typically stipulate that a potential franchisee meet other financial requirements. A predetermined amount of readily available funds that are not borrowed is usually a necessity as well as a certain net worth. In order to pay for ongoing expenses that are not covered by revenue you will also need a guaranteed amount of working capital. Depending on the type of business, it is important that the working capital cover a particular length of time, ranging from a few months to possibly two to three years until the business is in full swing. The franchisor typically provides an estimate of the amount needed.

Besides the franchise fee, other upfront costs could include professional fees such as legal and accounting services, insurance, and operating licenses. Employee training, inventory, and equipment are usually part of the startup as well. Also plan on, rent and possible leasehold improvements, and other costs involved in setting up a retail location including the purchase of fixtures, signs, and landscaping. You may also incur grand opening and initial promotional expense to get the business going.

Keep in mind that many times a higher initial investment does not necessarily mean a higher return. Often times franchises can be started with a total initial investment of less than $200,000 and sometimes even less than $50,000. Some home-based business such as handyman franchises and marketing franchises provide a decent return with little upfront cash.

Ongoing, you will need to be prepared to continuously pay royalties to your franchisor, possibly 4 to 6 percent of your revenue. Also, insurance (liability and health), inventory, and equipment maintenance would be continuous expenses. Of course, there will be employee salary and benefits. Additionally, you may be required to pay into a national advertising fund.

Before making a decision on a franchise, it is important to obtain from the franchisor a copy of the Uniform Franchise Offering Circular (UFOC), also known as the disclosure document. The upfront fees are outlined in this circular. The document should describe the initial fee which may be non-refundable as well as the other startup costs. If there are any items that you believe might be a startup costs that are not mentioned in the disclosure, be sure to ask about them.

All in all, you want to be sure your financial situation will cover expenses for you and your family during the time it takes to get the business up and running. This may take several months or a bit longer than that. Keep mind your operating expenses as well as personal expenses for the first year or two in business. In order to have the best chance of success with a franchise, it is recommendeded you contact a franchise consultant to discuss your goals and finances.

How Much Does a Franchise Cost - To learn more about this author, visit Denise T. Davis's Website.

Like this article? Share it with your friends

E-Mail | Print | More

Related Articles
Low Cost Franchises Offer Way to Own Your Own Business
	Low cost franchises come at a very economical price range. But it will be a good investment, only if the franchise opportunity comes along with comprehensive training and support system.
Franchise Fees Produce Income, but be Careful
	When you receive a franchise fee you take on the obligation to train the franchisee, mentor them, and do almost everything possible to help them. However, income from franchise fees can be substantial!
Internet Marketing in 2008
	Internet marketing is becoming a more predominate tool to help franchisors get more qualified leads. When potential franchisees are looking for a business opportunity or a franchise opportunity to buy, 95% of them...
Selling Your Franchise: What Are Your Rights?
	Would you like to sell your franchise? Easy enough in theory, but not necessarily so easy in practice – the terms and conditions for selling your franchise are outlined in the Franchise Agreement, and Franchise Agre...
Do You Have the Right Stuff to be a Franchise Owner
	In the early 1980’s, there was an outpouring of magazine and newspaper articles that were titled “Do you have the right stuff to be a franchise owner?” The articles described the most important personality traits o...

---

Related Forum Posts
	Re: Info for would be franchisers...
	Re: Info for would be franchisers...
	how much for a franchise fee?
	New England Franchise Association 11-7-06 Meeting
	Re: Info for would be franchisers...
	Franchises & Taxes
	FIY- UFOC replaced by FDD
	Re: FIY- UFOC replaced by FDD