Are you someone considering buying a franchise? While many people consider owning a franchise, not many take the time to properly calculate the cost of a franchise. It turns out that there are several factors that affect the final cost of the franchise which means that each company will be different. However, no matter which restaurant you are interested in, there are some common costs that are the same in every situation. This includes the franchise fee, all construction costs, contractor fees, professional fees, signage, and your inventory. It also requires that you have enough working capital to open and stay in business until the business can truly sustain itself. Let’s take a moment to take a closer look at the common costs that accompany a franchise opportunity.
1. Franchise fee
Each business will require you to pay the initial franchise fees. These fees cover the cost of training, support, and site selection. The benefits (or elements) that are included in these rates are different from one company to another. In certain cases, these fees are simply an initial license fee that gives the owner the right to use the business name. That’s why it’s a good idea to take the time to research what you’ll get in return for paying your franchise fee.
This fee can range from $ 20,000 to $ 50,000. For example, McDonald’s franchise fee is on the high end of $ 45,000. However, there are some cases where your fee may be less than $ 20,000. Those with lower franchise fees are usually mobile or even from home.
2. Legal and accounting fees
If you are interested in purchasing a franchise, you should consult with a professional franchise attorney. He or she can help you review the Franchise Disclosure Document, better known as FDD. They can also help you better understand the franchise agreement. While there are no set fees, in this case, you should expect to pay between $ 1,500 and $ 5,000 to enlist the help of a franchise attorney. The amount you pay also comes down to the amount of time you spend with your attorney.
Just remember to keep a complete and clear record from the beginning. You may even consider hiring a professional accountant to keep an account specifically for your meetings. Not only can the accountant make sure that you don’t go over budget with your legal fees, but they can also make sure that you have enough working capital.
3. working capital
The cash that you have available on a day-to-day basis is called working capital. This amount must be able to cover a specific period of time. This time frame can range from two to three years, as long as your business begins to improve. McDonald’s requires a working capital of $ 750,000.
The franchisor will usually provide estimates of the amount you need, however it is a good idea to do your own research if you want to make sure your calculations are based on your market rather than system averages.
Four. Construction costs
Construction cost is another factor that can vary from one franchise to another. Once you’ve decided on a company-approved location, you can determine construction costs. This includes furniture, equipment, signage, and accessories. It may also include professional fees for architectural drawings, contractor fees, security, insurance, and landscaping. There is one exception: home-based franchise; these franchises have no construction costs.
5. Supplies
You cannot manage your franchise without the proper supplies. This can be something as simple as plastic utensils for your everyday office supplies. Franchisors often provide a list of what is needed. This amount can vary, but a homeowner should expect to pay more than $ 100,000 in most cases.
6. Inventory
If you are buying a retail franchise or any other franchise where you sell a specific product, you need to stock up on inventory. Again, each franchise is different and has different requirements. You may need to purchase between $ 20,000 and $ 150,000 in inventory.
7. Expenses during training
Franchisors provide training to owners and at least one employee. In fact, completing the training is often a requirement. Although the training is generally covered by your franchise fee, the owner will be responsible for travel and living expenses. This amount can also vary depending on the location and needs of individuals.
As you can see, owning a franchise is not an easy endeavor. If you want to be successful with your purchase, you need to understand all the different factors that come into play financially. In cases of franchises like McDonald’s, your total costs will amount to more than $ 900,000. However, with diligent research and realistic expectations, you should be able to secure a spot with the chain of your choice.
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