How Much Does a Franchise Cost? The answer to this question is not very simple. Every franchise has its own financial requirements, so the costs to start a franchise are different for every franchise company. In most cases, you will be required to pay a franchise fee, all build-out costs for your location (including furniture, fixtures and equipment), professional fees, contractor fees, signage and inventory. The franchisor does not contribute to any of these costs.
Here is a list of 6 common costs to open a franchise:
1. Franchise Fee
Every franchise company will require you to pay an initial franchise fee. Most franchise fees are between $20,000 and $50,000. In some cases, you may see franchise fees less than $20,000. These franchises with lower franchise fees are usually home-based or mobile franchises.
The franchise fee usually covers the cost of training, support and site selection. The items or benefits that are included in a franchise fee are different for every company. In some cases, the franchise fee is just an upfront licensing fee for the rights to use the franchise name. I strongly suggest you investigate exactly what you are getting in return for the franchise fee.
2. Legal Fees
Anyone considering buying a franchise should consult with a franchise attorney. Your franchise attorney will help you review the UFOC (Uniform Franchise Offering Circular) and the franchise agreement. There is no one set fee to review these documents. It is safe to say that you should budget anywhere between $1,500 and $5,000 to pay to a franchise attorney. The amount of time you spend with your attorney will determine the overall price.
3. Build-Out Costs
It is almost impossible to estimate a price for build-out costs since each and every franchise is different. Once you have decided on a franchise and a specific location you will be giving an estimate from the franchisor of your overall build-out costs. This will include all furniture, fixtures, equipment and signage.
Of course if you decide to buy a home-based franchise there are no build-out costs involved. You may have some other costs for software applications or computers but sometimes these items are included in your franchise fee.
4. Inventory
If you are buying a retail franchise or any other franchise that you are selling a specific product you must stock up on inventory. Once again, every franchise is different and has different requirements. You may be required to buy between $20,000 and $150,000 worth of inventory.
5. Supplies
All new businesses require you to have the proper supplies to run your business. Whether it is a food franchise required to offer plastic utensils to its customers or a service-based franchise that is in need of office supplies, every franchise needs the proper supplies in order to do business. Your franchisor should be able to give you an accurate estimate of what is needed before you open your franchise.
6. Working Capital
Working capital is in the amount of day-by-day cash available to a business. 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 that is needed.
