Before we begin learning about the financial considerations of buying a franchise and their associated costs, you should have an understanding that these businesses come in all shapes and sizes. There are thousands of different franchise concepts to choose from and their level of investment varies as much as the types of businesses in dozens of different categories. What we’re saying is that there is a franchise to fit anyone’s investment level.
When deciding to go the franchising route to business ownership, you’ll need to know what financial considerations and obligations will be expected of you.
We urge you to conduct the proper amount of due diligence during any franchise investigative process. Always consult your own professional advisors in determining your investment range.
The initial franchise fee is what a potential franchisee pays the franchise brand to become a licensed operator.
It’s the price that must be paid to join the system, earning you the right to all trademarks, business processes and brand exposure. While costs can vary from less than $10,000 to upwards of several million, most franchises run from about $50,000 or $75,000 to about $200,000. Another financial consideration is the franchise’s royalty fee. This fee is typically determined as a fixed or variable percentage of gross sales and usually paid to the franchisor monthly. Lastly, some—not all—franchises require their franchisees to pay into a marketing, advertising or promotional budget. This too, is usually calculated to a certain percentage, with all franchisees in the system contributing equally to an overall budget. Franchising doesn’t require a lifetime of savings or your hard-earned nest egg. Financing can play a big role in getting you to the finish line.
Associated costs of earning a franchise will be different for every individual and every franchise concept. That’s because the concepts themselves all have such a wide variety of necessities to operate successfully. Not every franchise will have associated costs; some will have few and others will have quite a bit. All associated costs of owning and operating a franchise must be spelled out in the brand’s franchise disclosure document (FDD). What are some examples? Construction, build-out, site-selection, inventory are factors with certain franchise brands. Lastly, one should also count the personal professional service fees (legal and/or financial review and recommendations) that each potential franchisee should bring to the table.
The financial considerations and associated costs that come with franchising should never be considered a barrier to market entry. A good franchise consultant will be able to assess each individual’s personal finances to find a suitable business for which to invest. With so many options and advantages to business ownership, it’s clear why franchising remains a popular avenue for becoming your own boss.