Tweet

How Much Does A Franchise Business Cost?

Written by: Candice Clem

Article Overview: Spending the money to purchase a franchise isn’t an easy thing to do, particularly if you’re unfamiliar with the ins and outs of the business. If you feel you need a crash course in franchise costs, this is for you.

How Much Does A Franchise Business Cost?

Stepping out and taking hold of a business opportunity as a franchise owner is never a comfortable task. No matter how excited a person can be about the prospect of owning his own business, there is always some degree of trepidation at what all it is actually going to entail. Particularly if you’ve never purchased a franchise business before, there are certain aspects of purchase and operation that should rightfully draw some questions from you, not the least of which being the price.

Unfortunately though, pricing on franchises is not a simple matter. For starters, there is a huge cost discrepancy between the initial costs of high-end and low-end franchises. Then, depending on what a given franchise actually does, there are different kinds of costs that can apply to one kind of business and not another. Because that’s a rather vague overview of the confusions surrounding the purchase price of a franchise, the following is a piece-by-piece analysis of what costs exist and what costs to look out for when buying a franchise.

Upfront Expenses
When the average newcomer to franchising approaches a purchase and asks how much a franchise costs, this is most likely what he’s asking about: the amount of money it’s going to cost him just to start. This is broken down into three primary parts of the cost: the franchise fee, startup costs, and available funds.

The franchise fee is conceivably the most straightforward aspect of the whole transaction. It’s the fee you pay to gain the rights to use the name, logo, and business model of the franchise. Generally, this number hovers in the range of $10,000-$50,000, depending on the franchisor.

Startup costs have the most variance among the three parts of the initial cost of a franchise: ranging anywhere from $1000 or less up to millions, depending on the kind of business opportunity in question. Low cost franchises like American Business Systems, a home business providing cheap and efficient medical billing services, can cost as low as a few thousand dollars to get underway, simply because there is no store to build, no inventory to buy, and little equipment necessary. Home businesses, consultancies, vending operations, and web-based businesses all tend to fall on this cheaper end of the spectrum. On the other end of the gamut, high capital franchises like STAR KIDS Early Learning Center can carry a startup cost upwards of $3mil to cover the cost of site selection and purchase, construction, employee hiring, training, and tons of equipment. Other businesses that fall into this high price range are hotels and fast food restaurants, with auto repair and retail establishments following not too far behind. Other costs included in the startup operational expenses are often professional fees, insurance costs, and the cost of any necessary operating licenses.

Finally, the third piece of the initial cost of a franchise is the franchisee’s available funds for working capital. Some franchisors require that a new buyer have a certain amount of available cash on hand to ensure that the business has something to fall back on if it isn’t quite as instantly successful as hoped. This amount may be enough to keep the business running for just 3 months or as much as 3 years, depending on what the franchisor requires.

Ongoing Expenses
Something never to forget is the ongoing cost of operating a business, because spending doesn’t stop when the front doors open, rather it’s just begun. So when you purchase a franchise, be sure to calculate in all that you’re likely to be paying throughout the life of your new operation.

First, there are still fees to pay to the franchisor after you become a franchisee. The most common is a royalty fee, which is generally a percentage of franchise’s earnings, somewhere around 6%. However, not all franchises charge on ongoing royalty, like Candy Bouquet, the creative retailer of candy gifts which has no royalty fees to pay, so it’s important to ask whether or not the business that you’re interested in does.

Sometimes, the franchisor charges an ongoing advertising fee as well, to help afford a pre-existent and ongoing local and national advertising campaign. If this is an included fee, it can be collected either independently or as part of the general royalty fees, so whether you see a listed advertising cost or not, it’s important to ask if there is one and what it costs.

Aside from regular fees owed to the company, there are also plenty of ongoing expenses that are natural to any kind of business, franchise or not. Some of those basic expenditures cover things like inventory, equipment, rent, décor, equipment and store maintenance, payroll, employee benefits, and various types of insurance. Most of these generally don’t pertain to home based business, but in any operation with a storefront, such costs are to be expected and entirely necessary. If your franchisor, or perhaps another franchisee, can give you an estimate on monthly expenses, it will go a long way in helping you determine which franchise is best for you.

Counting the Cost
Whether you’re interested in a work from home opportunity or a full-service hotel, knowing what you’re going to be paying at the beginning is important to the success of your business and to your personal peace of mind. Do all your research, pose all pertinent questions, and don’t get reeled in by fine-sounding rhetoric; know what you want and what you want to spend for it, and then stick to it.

Related Articles
  Low Cost Franchises Offer Way to Own Your Own Business
  Seven Questions to Ask when Starting a Franchise
  Reselling Your Franchise
  Internet Marketing in 2008
  How Much Will A Business Franchise Loan Cost When Financing A Franchise In Canada ?

Article Tags: american business systems, amount of money, business model, buying a franchise, confusions, different kinds, discrepancy, franchise business, franchise costs, franchise fee, franchise owner, franchisor, initial costs, low cost franchises, medical billing services, own business, simple matter, startup costs, trepidation, variance



Related Forum Posts
No fee biz banking - I miss Bizsmart - it was a great no fee banking option for businesses but I guess the company wasn't making much returns and had to shut down. Are there any other no fee or Low Cost Business banking options still available in Canada?
Re: Enticing Franchises - Top 9 List - All Franchise listed above are in millions of dollars. Do you have the list of Franchise in thousands
Re: Info for would be franchisers... - [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there. To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1] Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published. I guess the old adage holds true of "it's not who you know, but who knows you" that's important.
how much for a franchise fee? - Dear Colleague There is no easy answer to this question. Things to consider: [list=] The sizeof the Franchise Clent base Expected Turnover Intellectual Property costs (recoup) Number of Franchises Number of employees Original Set up costs Franchise admin costs An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000. Hope that this gives you some idea Take care Ian[/list]
Fed rate cuts . . . - So just what do the newest Fed rate cuts mean to Franchise and Business Opportunity investing? Is it immediately felt? What timeframe do you think, or rather, where are we in terms of new vs. existing business investment? A similar question can be composed for the economic stimulus checks - will they a have any effect if consumers spend a little $$


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Soda Vending Machine = Energy Hog

Good News Travels Fast

10 Ways to Handle Objections Effectively

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.