The Full Cost Of Franchising
For anyone thinking about starting a business, the idea of franchising can appear to be a strong option.
But how much does it actually cost to get a franchise up and running?
Before signing an agreement, it's crucial for anyone investing in a franchise to understand the entire cost of that franchise, both before and after opening.
To begin with, nearly all franchises will require significant financial reserves held by the franchisee. Most franchisors typically look at an individual's available liquid assets as well as their total net worth.
For example, Burger King franchises are available if you meet the requirements of $500,000 in liquid assets and $1.5 million in net worth.
Some franchisees don't realize the extent of the costs that will be incurred prior to opening a franchise. At a minimum, there are attorney's fees to review your contract with the franchisor, and accountant's fees to work the numbers of your business. These fees can be substantial.
Then, depending on the type of business, there are the costs for things such as building out the space, buying inventory, equipment, and insurance, training employees, getting business licenses, and of course rent, landscaping, and any needed signage.
And don't forget costs associated with your grand opening, like advertising and promotional expenses. The initial marketing push for a new business is not a trivial expense.
And, naturally, there is the franchise fee. This is a one time fee to buy your way into the brand. The fee typically runs around $20,000 to $30,000 but can be upwards of $100,000 for established high-end brands.
That accounts for most of the upfront fees of franchising, but of course there are many ongoing expenses as well. These will vary by industry, and are generally well known based on the experience of other franchisees, which is one of the major benefits of franchising.
Among your ongoing expenses will be a royalty fee paid to the franchisor. For most franchises, the fee ranges from 4 percent to 8 percent of gross revenue.
And ultimately there's the cost of restriction to your freedom to run your business as you wish. All franchisees have to fall in line with corporate direction. Much of the decision making about how your business will run has already been made. On one hand, this makes a franchise seem simple and predictable. On the other hand, you don't actually have control over how you do things.
Obviously there are many costs associated with running a franchise. If you are considering starting any business, make certain you fully understand all of the expenses that will be involved.