Are you someone considering buying a franchise? While many people consider owning a franchise, not many take the time to do a proper franchise cost calculation. 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’re 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 sustain itself. Let’s take a moment to take a closer look at the common costs that come with a franchise opportunity.
1. deductible fee
Each business will require you to pay 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 company to company. In certain cases, these fees are simply an initial license fee that grants the owner the right to use the business name. This is why it’s a good idea to take the time to research what you’ll get in return for paying the franchise fee.
This fee can range from $20,000 to $50,000. For example, McDonald’s franchise fee is on the high end at $45,000. However, there are some cases where your fee may be less than $20,000. Those with lower franchise fees are often mobile or even home-based.
2. Legal and Accounting Fees
If you are interested in purchasing a franchise, you should consult with a professional franchise attorney. He or she will be able to help you review the Franchise Disclosure Document, better known as the 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 anywhere from $1,500 to $5,000 to get the help of a franchise attorney. The amount you pay is also reduced by the amount of time you spend with your attorney.
Just remember to keep a complete and clear record from the start. You may even consider hiring a professional accountant to keep a specific account for your meetings. The accountant can not only make sure you don’t go over budget with your legal fees, but they can also make sure you have enough working capital.
3. working capital
The cash 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 starts to pick up. McDonald’s requires a working capital of $750,000.
The franchisor will usually provide estimates of how much you need, however it’s a good idea to do your own research if you want to ensure your calculations are based on your market rather than system averages.
4. construction costs
The cost of construction is another factor that can vary from franchise to franchise. Once you’ve decided on a location that the company approves, you’ll be able to determine construction costs. This includes furniture, equipment, signage, and fixtures. 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 run your franchise without the proper supplies. This can be something as simple as plastic utensils for your everyday office supplies. Franchisors will usually 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 shopping for 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 worth of 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 usually covered by the franchise fee, the owner will be responsible for travel and living expenses. This amount can also vary depending on the location and the needs of the people.
As you can see, owning a franchise is not an easy task. 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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