Each company’s franchise fee varies, but many requirements are the same. To estimate the right cost to open a franchise, you will usually be required to pay a franchise fee to the franchisor, as well as all build-out costs, including furniture, fixtures, and equipment. These include professional and contractor fees as well as signage and inventory. You’ll also need working capital to keep your business afloat until it becomes self-sustaining. Here are the basic fees.
Legal & Accounting Fees
Anyone considering purchasing a franchise should consult a franchise lawyer. Your franchise lawyer will help you review the FDD and the franchise agreement. There is no set fee for reviewing these documents, but you should budget between $1,500 and $5,000. The amount of time you spend with your lawyer will determine the overall rate.
Record-keeping must also begin immediately. You should hire an accountant to keep track of your expenses. An accountant will help you set up your books and records. Your accountant can also help you calculate working capital needs.
Working capital is the daily cash flow of a company. Depending on the type of business, working capital coverage can range from two to three months to two to three years.
The franchisor usually estimates the required amount. In any case, you should do your thorough research to ensure your calculation is based on your market and not the system average.
Cost to open a franchise includes franchise fees between $20,000 to $50,000 & higher. Some franchises charge less than $20,000; these are usually home-based or mobile franchises. The franchise fee usually covers training, support, and site selection.
Every company’s franchise fee includes different items or benefits. In some cases, the franchise fee is simply a one-time licensing fee. Examine exactly what you get for your franchise fee.
Franchise build-out costs can vary greatly. Once you’ve chosen a franchise and found a location, the franchisor can help you estimate your total build-out costs.
Furniture, fixtures, equipment, and signage are typical examples. Start-up costs include professional fees for civil and architectural drawings, zoning compliance, contractor fees, decor packages, security, deposits and insurance, and landscaping. If you buy a home-based franchise, there are no build-out costs. Other costs for software or computers may apply. Some franchise fees include these costs.
Whether it’s a food franchise that gives out plastic utensils or a service franchise that uses a lot of office stationaries, every franchise needs supplies to run. Your franchisor should be able to provide you with a detailed list of required items.
If you buy a retail or other product-based franchise, you must stock up on inventory. Again, each franchise is unique and has different requirements, but you may be required to buy inventory worth $20,000 to $150,000 and include this as your cost to open a franchise.
Travel & Living Expenses on Training
The franchisor will usually require at least one other employee besides yourself to attend and complete the training. A franchisee is rarely responsible for training-related travel and living expenses.
Some franchisors offer training from a few days to a few weeks. Meanwhile, classroom training is followed by online webinars or classes in more complex franchise systems.
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