Are you someone who is considering buying a franchise? While a great deal of folks consider having a franchise, not many take the time to do a proper calculation of a franchise price. It turns out that there are numerous factors that influence the final cost of the franchise that means that each company will be different. However, whichever restaurant you’re interested in, there are a couple of common costs which are the exact same in each situation. This includes the franchise fee, all build-out costs, contractor fees, professional fees, signage, and your stock. Additionally, it requires that you have sufficient working capital to start and remain in business until the company can really support itself. Let us take a moment to further discuss the common costs that come along with a franchise opportunity.
1. Franchise Fee
Every company will require that you pay the initial franchise fees. These fees cover the cost of instruction, support in addition to site selection. The advantages (or items) that are included in these charges are different from one company to the next. In certain instances, these fees are only an upfront licensing fee which gives the owner the right to use the company’s name. This is the reason it’s a good idea to take the time to do research into what you’ll be getting in return when paying your franchise fee.
This fee can range from $20,000 to $50,000. By way of example, McDonald’s franchise fee is on the higher end at $45,000. However, there are some cases where your fee may be less than $20,000. Those with lower franchise fees are typically mobile or even home-based.
2. Legal and Accounting Fees
If you’re interested in buying a franchise then you should check a professional franchise lawyer. He or she will have the ability to help you examine the Franchise Disclosure Document, better known as the FDD. The amount you pay also comes down to how long you spend with your lawyer.
Just remember to keep a clear and thorough record from the very beginning. You may even consider hiring a professional accountant to maintain an account specifically for your own meetings. Not only can the accountant make certain that you don’t go over budget with your legal fees, but they can also make certain that you have enough working capital.
The cash that you have available from day to day is called working capital. This amount has to be able to cover a specific length of time. This time period can range from two to three years-whenever your business starts to pick up. McDonald’s requires a working capital of $750,000.
The franchisor will often provide estimates of the quantity that you need, however, it’s a good idea to do your own research if you want to be certain that your calculations are based on your market rather than system averages.
4. Build-Out Costs
Build-out cost is another factor that can vary from one franchise to another. As soon as you’ve decided on a location which the company approves, you will have the ability to determine the build-out costs. This includes furniture, equipment, signage, and fixtures. It may also have the professional fees for architectural drawings, contractor fees, security, insurance, and landscaping. There is one exception: home-based business; these franchises have no build-out costs.
You can’t run your franchise without the proper supplies. This could be something as straightforward as plastic utensils to your everyday office supplies. Franchisors will typically provide a list of what’s needed. This amount can vary, but an operator should expect to pay well over $100,000 in many cases.
If you are purchasing a retail franchise, or any other franchise in which you’re selling a specific product, you must stock up on inventory. You may be asked to purchase between $20,000 and $150,000 worth of inventory.
7. Expenses While Coaching
Franchisors provide training for owners and at least one employee. In actuality, completing training is usually a requirement. This amount may also vary based on the needs of the individuals.
As you can see, owning a franchise is not a straight-forward endeavor. If you would like to be successful with your purchase, then you want to understand all of the different factors that come into play financially. In cases of franchises like Mcdonald’s, your overall costs will amount to more than $900,000. However, with diligent study and realistic expectations, you should be able to secure a location with your chain of selection.