How Much Does a Franchise Cost?

How Much Does a Franchise Cost?

There's an old saying, "You have to spend money to make money." In a franchise business, you can spend as little as $10,000, and still make money. Once you've decided that you want a franchised business the next step is to determine what industry category you are interested in, for example, food, service, pet care, etc. Then you determine what franchise business you can afford within the category you choose.

To ask "How much will a franchise cost?", is a loaded question. The cost of buying a franchise varies depending on the type of business you want and the franchise brand. The costs can range from $10,000 to upwards of $5 million, the majority of franchises run from about $50,000 to about $200,000 to get started. For the low-end investment of $10,000, you can get into a home-based or mobile franchise concept, these models are simple to run and usually involve one employee to start (you). The other extreme is high-end restaurants or hotels that can cost $3-5 million. There are multiple options in-between, fast food ($250,000-$1 million), auto repair and maintenance facilities ($200,000-$300,000), or home service and restoration ($100,000-$250,000).

Before you begin you need to know how much you have to invest, the initial investment includes the franchise fee and the cost to set up the operation. Knowing how much you have to invest allows you to approach the industries and brands that fit your budget.

The franchise fee is a one-time entry price to use the franchisor's brand, operating system, and to receive ongoing support in management, training, marketing, and more. Franchise fees generally run in the $20,000 to $40,000 range, though they can top $100,000 for higher-end, more established brands. When you are up and running there are ongoing royalties to pay, which typically range from 4 percent to 8 percent of gross revenues and frequently include an ongoing assessment for a joint marketing and advertising fund.

Franchisors usually have minimum financial requirements before seriously considering a candidate. The primary requirement is liquidity, how much cash do you have to put towards a business. Franchisors usually require new franchisees to have a minimum amount of liquidity in order to keep the business afloat during its first year or more, until your bottom line turns from red to black. The other requirement is net worth, franchisors usually set a minimum level of net worth before they consider you a qualified candidate for their brand.

For example, a Burger King will cost about $2.2 million for a typical restaurant--if you meet the minimum financial requirements of $1.5 million in net worth and $500,000 in liquid assets.

Many of the franchise companies participate in the VetFran program. The franchisors provide discounted franchise fees and can offer reduced royalty payments for veterans.? The franchise world is very friendly to veterans since veterans are known for being able to follow a system and do very well in the industry.

Although the entry costs and ongoing expenses of getting into franchising may seem steep, it also costs money to start your own business. One of the advantages of choosing a franchised business is that you enter with your eyes wide open regarding startup and future costs. Based on the experience of existing franchisees, franchisors can provide you with a very accurate picture of what it will cost to start the business, your ongoing expenses, and a good approximation of when your revenue stream will turn positive--valuable information you won't have if you start your own business.

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