How Much Does It Cost to Open a Franchise?
If you are thinking about going into business for yourself, you may look into opening up a franchised operation in your area rather than fully bear the responsibility and cost of developing your own unique business idea. Franchises often offer upfront training, established marketing and operations practices and full support to help make your business succeed. However, be prepared to pay the costs associated with opening a franchise, along with adhering to requirements set forth by the franchise organization.
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Franchise Fees
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Each franchise will require payment of an upfront franchise fee. This fee gives you the rights to operate the business under the franchise's name in certain markets as set forth by the agreement. The franchise fee can range from several thousand to several hundreds of thousands of dollars depending on the franchise. These fees must be paid upfront and often include both on-site and off-site training. Also, ongoing franchise royalty fees or marketing fees must be paid to the organization to continue operation.
Capital Requirements
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Many franchisers -- the ones that own the franchise operation -- require the franchisee to have ready access to a certain amount of liquid capital. The franchiser will dictate how much funds should be set aside as well as acceptable types of collateral or assets that can be calculated toward this requirement. The required amount typically excludes the franchise fee and must be in excess of the required working capital needed to start the business. Since the franchiser is also heavily invested in the success of a new franchise owner, this excess capital provides a cushion to ensure the business can continue to operate even if the franchise location gets off to a slow start.
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Equipment & Inventory
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Once you have paid the franchise fee, you will find that you must actually purchase the necessary equipment and inventory needed to operate the franchise per the franchiser's direction. In some cases, the equipment can be sourced privately, but often the items must be bought directly from the franchiser. These costs are rarely included in the upfront franchise fee. Knowing exactly what you need to purchase can be helpful, but it may preclude you from buying used equipment from a defunct business to use in your new operation.
General Operating Costs
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The franchise owner is responsible for costs that are generally part of opening up any business. Franchise owners are required to buy or lease real estate, collect and remit state sales tax, pay for electricity costs and make payroll. The franchiser will often provide some guidelines on how much you can expect to need to get the ball rolling on your new operation, but the cost falls on the franchise owner.
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