One of the biggest reasons a business fails is lack of capital. Even budding business owners have a difficult time determining exactly how much money is needed to open and keep operations running until the business becomes profitable.
What Fees are Required to Start and Run a Franchise?
A major benefit of investing in a franchised business is that the fees are almost all known up front. Your franchise consultant can go over initial fees with you and help you learn more about them during examination of the Franchise Disclosure Document (FDD). The FDD is where the franchisor is required to provide an estimate of the initial investment each franchise will require, including the working capital needed during the early months of operation. You can even speak with current franchisees and consult with them on their expenses, and if they were close to what the franchisor estimated.
Franchisor Fees
There are a couple of different fees to consider when looking at a franchise. The first is the Franchise Fee.
The Franchise Fee is the cost of entering into a franchise agreement with the franchisor.
There are also potential royalty fees. Royalty fees are recurring fees paid to the franchisor for the right to continue doing business.
Some franchisors charge a National Advertising and/or Marketing fee to go towards ongoing campaigns.
Finally, some franchisors charge a Technology Fee which covers any licensed software and hardware required to run the business.
Brick and Mortar Charges
If the franchise you’re investing in requires a store front, or any type of brick-and-mortar setup, then there are some specific fees to look at.
First, you may have to pay someone to find the right location for you, although this is often paid by the landlord. This would probably be a realtor, along with any demographic and geographic research needed.
Then you’ll have security fees/lease deposits and rent payments to consider. You may also have professional fees, such as architects, engineers, general contractors, and interior designers and decorators. And finally, you may have to deal with “outside” fees i.e. signage, landscaping, pavers, etc.
However, you may choose a franchise that is home-based, or even mobile, and many of these fees won’t apply.
Operations
Inventory and supplies are a main consideration when opening your franchise. Without these, you don’t have a business! (Unless you choose a franchise that requires no inventory).
Insurance will also be a fee you need to think about. Business, property and casualty, auto, worker’s comp, etc., are all on the board!
Computers and software are a consideration, too. Most businesses run on tech these days, and that can come at a hefty price.
And finally, you’ll need to know your working capital.
What is the cash you’ll need for day-to-day operations, and to continue your business for weeks, months, or even the first year or two, before your franchise becomes profitable enough to be self-sustained?
Learn More from a Franchise Consultant
While all these fees seem daunting, it is important to know what you’re getting into before moving forward. And, in most cases, there are financing options which will help you get started. Again, a professional franchise consultant will help you understand all of your investment requirements.
Franchise Matchmakers is a team of franchising professionals that are dedicated to helping people explore business ownership as a career path. Contact us at info@franchisematchmakers.com to find out more about franchising options that may suit you.
