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What Are the Costs of Opening a Franchise?

January 06, 2020
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Buying a franchise is a great way to become a business owner without having to start from the ground up. In many ways, buying a franchise is like a "shortcut" to becoming your own boss and owning your own business. This is why purchasing a franchise is such a popular option for so many people who want to pursue the dream of being a business owner. When you purchase a franchise, you are buying into the name itself. You're licensing the use of a brand that has a loyal customer base, established business methods, and products and services that have been tested. These are the advantages of purchasing a franchise. The end result means you have a turnkey business that won't take you years to establish. You can begin making money right away. That's a good thing because opening a franchise can be expensive. There are a lot of costs associated with opening a franchise, and while those costs can pay off handsomely, they need to be considered when you are looking for a franchise to buy.

There are Lots of Costs Associated with Opening a Franchise

What Are the Costs of Opening a Franchise?

We can't give you a set dollar amount for the cost of opening a franchise because that depends on the cost of the franchise itself. Every franchise and the associated expenses vary. We can, however, let you know about some of the most important costs of opening a franchise. Here are some costs you might expect to see when opening a franchise:
  • Franchise Fee This is the most obvious. Franchise fees range between $15,000 up to hundreds of thousands, depending on the franchise you choose. Your budget restrictions will dictate what you spend here. This is the initial cost of purchasing the franchise. The initial franchise fee will typically cover training, franchisor support in the selection of your franchise site if one does not currently exist, and the right (license) to use the company brand and products or services. Other things a franchise fee can include might be different from one franchise to the next.

  • The Initial Franchise Fee Will Cover Training, and the License to Use the Brand
  • Working Capital You will need more than just the franchise fee to start making money with your franchise. Once you've opened your doors and started doing business, you will need what is called working capital. Working capital, as the name implies, is the day-to-day cash available to a business for operational purposes. Once a business is established, the working capital is set, but a new franchise needs to have working capital on hand at the start. The working capital amount on hand varies depending on the type of business, but the working capital should cover a set period of time, which could be months or even years. For a franchise, fortunately, the built in customer base means you might need less working capital than you would with a start-up. The franchisor will be able to provide you with reasonable estimates for the amount of money needed for your working capital. This is a good benchmark, but you might want to do some research and calculate based on the market you will be instead of the overall system average. This can give you a clearer picture of the working capital you will need, which you can then figure into your loan amount when you are taking out a loan to purchase your franchise.

  • Working Capital is the Day to Day Cash Available to a Business
  • Build-Out Costs If there isn't a location ready to go, just a site, you will be responsible for the cost of building the location, which includes all of the furnishings and anything associated with the building. This also includes zoning compliance, contractor fees, security, deposits, insurance, contractors, and state and local fees associated with opening a business. The build-out can be very costly and out of reach for some first-time franchisees. Home-based franchise opportunities, of course, won't include this cost, making these types of franchises ideal for someone who has a limited budget and is just starting out.

  • Build-Out Costs are the Costs of Building a New Location
  • Supplies and Inventory In many cases, these will be purchased from the franchisor at cost. There may be some supplies you have to purchase elsewhere. The cost of the supplies and the inventory will depend on how much of it you need on hand. This can vary greatly depending on the size and type of business, but count this as a major cost. This is where working capital comes into play.

  • The Cost of the Supplies and Inventory Depends on Each Business
  • Legal and Accounting A franchise attorney is a good idea for anybody buying a franchise. A franchise attorney can help you understand your Franchise Disclosure Document and your franchise agreement. The fees of the attorney can vary, but you should always budget accordingly. Obviously the more you use an attorney, the steeper the cost. You'll also need accounting services, which can become a chore. You need to have someone dedicated to this right away, preferably a qualified accountant, which means you can add accountant fees to the mix. Your franchisor often has dedicated software for bookkeeping. Your accountant can also help you figure out how much working capital you might require, so the importance of an accountant cannot be overstated.

  • A Franchise Attorney is a Good Idea for Anyone Buying a Franchise

Research Is Your Best Friend

When it's all said and done, nothing beats research. Once you've decided on a franchise, you can begin figuring out the associated costs from there. Before you apply for a loan for your franchise, you'll need to have accurate costs in place so you can include those costs in your loan amount.

While you're looking for a franchise to buy, don't forget to visit our social media profiles. We always keep you up to date with the latest franchise opportunities. There's no better way to stay on top of what's new in the industry than with the largest directory of franchise opportunities available anywhere.

Owning a franchise can be a life changer. If your goal is to be your own boss and build a financially secure future for your family, owning a franchise can be the best way to do that. All USA Franchises wants to be a part of making your dream a reality, so find your future with All USA Franchises today.

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