Franchising is a great way to put your money to work, but you should know that it takes a significant amount of money to get your franchise off the ground and even more money as the year goes on.
When preparing your finances for a franchise, consider the following cost breakdown to own a Franchise.
Franchise Purchase Cost
The amount of money needed to buy a franchise varies based on the firm and the industry, as you may have noticed in the previous chapter. It can cost as little as $36K (like UPS) to as much as $2.2M (like McDonald’s) to buy a franchise, the right to use a larger company’s name.
The Franchise Fee is the name given to these charges. In most businesses, franchise fees last for at least twenty years. In other words, your $36,000 buys you the right to use the UPS name and logo for the next two decades. UPS will want to renew your deal if you’ve been profitable, which means you’ll have to pay the $36K franchise fee again.
Franchise Royalty Fees
Many franchisees impose a yearly royalty fee in addition to the franchise fee. This means that the owner pays the franchise 12.5 percent of annual profits on average.
Location & Raw Material Costs
After much consideration, you’ve chosen to buy a franchise. Great! This company’s location is still up in the air. Real estate expenses, in addition to franchise and royalty fees, must be taken into account. Construction and materials costs for a typical franchise restaurant range from $755k to $1 million. These assets must be readily available and taken into account while determining how to get startup capital.
Other Recurring Costs
Other fees to consider after your franchise is established. We won’t go into detail here because of the wide range of industries. However, one must also consider the costs of salaries, stock, energy, water, gas, insurance, miscellaneous allowance, and emergency funds while calculating annual costs.
Overall Cost to Own a Franchise
Investing in a franchise is a fantastic way to expand your financial portfolio. Every year, a single McDonald’s restaurant can bring in millions of dollars in revenue. Franchises, on the other hand, are extremely expensive to run. If you want to start your franchise, you’ll need at least $1 million in liquid assets. You’ll also need to keep an eye on your finances and account for all of the other costs associated with running a firm.
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