Different Costs Involved in Opening Up a Franchise

Business / Wednesday, May 2nd, 2018

Opening a franchise will confer many benefits upon you. For one thing, you’ll get to enjoy everything that comes along with an established brand name, including popularity and profitability the minute you open your doors for business. And of course, all the heavy lifting has already been done. You’ll be handed guidelines and parameters for operations that cover everything from how employees dress and the way they greet customers to the number of items you should have on display in your store, just for example. You’ll have access to marketing materials, approved vendors, and of course, the advice and tutelage of the franchisor. In short, there’s generally a lot less risk involved in opening a franchise than you might face if you launched your own untried startup. On the flipside, though, there are a lot of costs involved in becoming a franchisee that you may or may not be prepared for. Here are some for your consideration.

The cost of your operation will obviously vary by the brand you decide to buy into and the type of industry you’re looking to enter. If, for example, you want to launch your own Mary Kay business, you can usually get started for a relatively affordable membership fee and the cost of product, which could be just a few thousand dollars up front. But if you want to purchase a fast food restaurant you could be looking at a few hundred thousand. And anyone who wants to open a hotel might spend a few million between the franchise fee, real estate, renovations, and so on. In short, the price range for launching a branch of a popular franchise can vary widely. So it’s practically impossible to predict the costs until you’ve decided on at least the industry that interests you. From there you can probably start to narrow down the scope of your expenses.

The franchise fee is the first major cost to consider since you’ll have to agree to pay it before you even start looking for a suitable location, much less moving forward with other plans. It’s also a good idea to get some legal advice during the process to ensure that you understand the contract you’re entering into, and attorneys aren’t cheap. But once you’ve signed on the dotted line, the real money will come into play. You’ll have to find a location, renovate to match the specifications of the franchise, purchase equipment, furniture, product, software, supplies, and so on, and hire a staff and train them for your opening. And once you open your doors there is no shortage of ongoing expenses to consider.

In addition to the normal costs of running a business, such as payroll, utilities, insurance, maintenance, and more, you’ll be on the hook for some kind of ongoing fees to the franchisor. In some cases these fees will have a purpose – the contract may specify that in exchange for specific monthly or annual fees you will receive local marketing materials, just for example. But you will almost certainly have to pay out a percentage of your earnings, as well. It’s only fair when you think about it; you’re benefiting from the name and concept that someone else created and they want their due. But you need to be prepared for this cut out of your earnings. The franchise you choose will, of course, determine how much you ultimately end up paying, so it is essential to do your research, ask questions, attend a¬†franchise expo, and generally figure out your options. When you understand the costs involved you can make informed decisions and gain the best chances for success.

Leave a Reply

Your email address will not be published. Required fields are marked *