open franchise cost

How much does it cost to open a franchise? That’s the million-dollar question. There are way too many variables that go into determining the cost of a franchise to give you a definitive answer, but you knew that. We’re just here to help you learn how to come up with an estimate on your own.

Variables can include anything from the brand, the system behind it, how you negotiate and what financing is available to you. Maybe the only real answer to that question is: franchise costs are all over the map. You can start a franchise for less money than what’s in your bank account right now. Others cost an exorbitant sum — think hotel franchise, for example.

In order to understand how much a franchise costs, you have to understand all the components that go into determining that cost. This is what we’ll be exploring below.

Legal Fees —As a businessperson, you need to have a lawyer, especially when it comes to evaluating the Franchise Disclosure Document (FDD) that you’ll be presented with, and handling all of the contracts that you’ll be signing. Having a franchise lawyer on hand is a savvy investment; don’t overlook it. There is no set fee for this; it will depend on how much time they spend working with you. An average amount you can figure on spending is $3,000 to $5,000.

Initial Franchise Fee — This cost may be the most obvious one, because it’s almost always consistent from franchisee to franchisee, regardless of circumstance. Generally speaking, this fee will range from $20,000 to $50,000, but it could be higher or lower depending upon the kind of business. This fee is designed to cover a number of different things, from initial setup support and training to possibly even marketing support. Are you getting what you pay for?

Setup Costs — The setup costs all depend on what you need to get your franchise up and running. Do you need to lease or purchase commercial or office space? Is there specialty equipment that’s required to get up and running? You’ll have to do your homework in order to determine what precisely your initial investment will entail.

Overhead — Obviously, it costs money to keep the lights on, the air conditioning functioning, and the Internet turned on. Also, it costs money to keep your inventory levels where they should be, and to deal with all of the other incidental things that go into running a business. Here, it’s useful to speak with other franchisees to get a sense of what these costs look like.

Rainy Day Fund — All businesses needs a rainy-day fund, pure and simple. Again, you may wish to consult with other franchisees to get a sense of how much liquid capital you should have on hand while running your business. Remember that this can play into your exit strategy.

Monthly or Annual Fees — Depending upon the franchise, there may be monthly or yearly fees you’ll be responsible for. It’s possible you may have to pay for ongoing marketing support. The FDD is an excellent guide for determining what fees (and royalties) you will be responsible for.

Your franchise needs to be the perfect fit for you, and cost plays a huge part in that. Make sure that you’re prepared with complete information for all of the above categories, so you can make an educated guess on how much your future franchise is going to cost.