Determining the Cost of Franchise Ownership


A lot of entrepreneurs would rather own and manage franchises instead of start their own business from scratch. The country’s economy is slowly recovering from recession but many Americans remain financially challenged because of its effects. Entrepreneurs are now wary of investing big money on a new business so they opt to engage on a franchise business instead. Buying a franchise nonetheless is still a big decision that requires thorough research and analysis. Below are some important factors that entrepreneurs need to know about franchise costs.

Franchise Ownership Costs

The costs to open a franchise consist of initial and ongoing franchise costs. These two should be thoroughly researched and evaluated before you sign a franchise contract or agreement. Remember that financial issues can happen even in the most lucrative offers or deals. First, you must pay an initial fee to open a franchise. This fee generally starts with several thousand dollars. A franchise ownership fee is usually around $20,000 to $30,000. Home-based and mobile types of business franchises, on the other hand generally ask for lower fees. In addition, the franchisor may require other financial obligations from prospective franchisees.

Aside from the initial fees, you also have to buy a franchise ownership. The cost to buy a franchise may be higher due to a number of factors, such as professional fees for legal services, hiring and training staff. Insurance expenses, operating licenses, equipment and inventory acquisition, and signage expenses also contribute to the additional costs. All these expenses need to be considered to come up with the expected cost of a franchise.

Cost to Open a Franchise in Different Industries

The initial and ongoing fees are just a fraction of the entire franchise cost. When you decide to open a franchise, an initial investment is a given, plus a suitable amount of funds for your working capital and support to the ongoing expenses of your franchise business.

The total investment cost significantly varies between one industry and another. Here are some examples of the range of investment costs in some of the biggest industries:

– Auto-repair enterprises – from $200,000 to $300,000

– Fast food chains – from $250,000 to $1 million

– Full-service restaurants – from $300,000 to $3.5 million

– Accommodation and lodging industries – $4 million to $6 million

Those who are searching for business franchise ownership in a smaller scale should consider home-based or mobile business franchises instead, for these have the lowest rates to open and require lesser expenses to maintain.

Every franchisor has its own unique procedures and requirements, making franchise costs differ among companies under the same industry. Generally, initial fees include training and assistance with basic equipment cost and business location selection. No standard rules or policies apply to costing so you need to consult with a trusted franchisor to get a reasonable estimate of the prospective investment. Inventory costs, for example can range between $20,000 and $150,000.

Your working capital is another factor to consider. This is important, as it sustains the operations of your business up to a particular period of time, from a few months to several years. Given all these, the cost of a franchise may be considerably higher or lower than what you have initially expected.

Regardless of the money and effort you’ll spend to open a franchise, such endeavor is always a rewarding and fulfilling experience. To open a franchise is easier and more convenient than starting out a new business due to lower risks and investment cost. If you do this right, the money you invested can easily double in no time. Are you now ready to calculate the cost of a franchise of your choice?