How to: Weighing the Costs Involved

Costs for starting a franchise can range anywhere from less than $10,000 to over $1 million, with a majority of them in the range of $50-100,000. Determining what you can afford should be one of the first things you do when you start your research. Knowing how much you can invest in the business or how much you’ve been approved for, will help you set an overall budget.

A lot of the investment will go into the front-end of the business, particularly the franchisee fee and start-up fees. The franchise fee is a one-time fee that allows the entrepreneur access to the business model, marketing materials, and everything else needed.

Fees Incurred Before You Open

Although this isn’t a full list, here are some of the major fees/payments that you’ll have to make before opening your franchise:

• Professional Fees- This includes fees from an attorney, who will need to review the contract and advice you. This could also include fees for a real estate agent, accountant, etc.
• Inventory & Equipment
• Building fees-  rent or building costs, insurance, landscaping, licenses

Fees incurred after opening your franchise

Now that your franchise is built and you’re ready to open, what other fees are there? Let’s take a look:

• Loan Interest- That’s if you borrowed instead of financing yourself
• Royalties- This ranges for all franchises but it’s usually a percentage of gross revenues.
• Marketing and Advertising- If this isn’t included in your royalty fee, then be prepared to pay for marketing and advertising. How else are people going to find out about your business?
• Employees and Benefits

What to Expect as a Franchisee-The Educated Franchisee

You May Qualify for Discounts

It’s not a guaranteed thing, nor is it expected, but many franchisors are now providing discounts to minorities, veterans, and women. This can include things like lower franchise fees and reduced royalties. Some franchisors are even running promotions throughout the year: buy our franchise today and pay no fees for the first years, etc.

So as you can see, it’s important to take a good hard look at the expenses you’ll be incurring. But one of the great things about franchising is the fact that the franchisors will tell you these costs. Although they can only estimate, franchisors will be able to give you an idea of when you’ll start making profits and what expenses you should expect to incur. This will help you get a better picture of exactly how much the business costs; it’s extremely hard to do that with a start-up.