What Will It Really Cost You to Own a Franchise?

As a prospective franchisee, you probably know that you will need to pay an initial fee to purchase a franchise. Perhaps you also know that you will have to pay royalties to the franchisor monthly or quarterly. But apart from that, you may not be certain how much it would cost to operate a franchise business. So, what are the fees and expenses you will incur in the long term? Let’s take a look

Upfront Costs 

In addition to the initial franchise fee, which may range from $10,000-15000 to $100,000 or even higher, there are several other expenses you will have to take care of before you start operations.

When looking to open a franchise, you will have to budget for securing a commercial space for the business and also for remodeling the space to suit your needs. Are you going to need a kitchen? An extra bathroom? However, you can reduce these costs by looking for commercial space that’s very close to what you need, but you may still need to spend on aesthetic remodeling to make the place more attractive.

Plus, you will need to put aside money for utilities like internet, water, sewer, and electricity. You may also have to pay for office supplies and equipment, including computers, merchant card processing machines, etc. So, make sure to include all these in your one-time budget.           

You also need to consider marketing. You may have to get someone to help create social media accounts for your franchise and do advertising or email marketing. These are expenses you will continue to pay over time, but the costs may be higher in the beginning.

Ongoing Costs                           

Contact your franchisor to know how frequently you will need to pay royalty fees. Most franchisors collect it once every month or once every three months. In addition, the franchisor can ask you to pay separate fees for marketing or advertising, so read through your franchise disclosure document (FDD) to have a complete understanding of all the franchise fees.  

Besides, you’re going to be paying for supplies, inventory, and payroll regularly, so it’s crucial that you have a lot of money to cover all these expenses without any issues.

Remember Personal Expenses

Many first-time franchise owners tend to forget one of the most important expenses: their own salary. Although you may choose not to pay yourself until the business become self-sustaining, you need to consider your personal expenses when creating the initial budget for the franchise.

Since there’s no guarantee that you will start making profits within a couple of months, you have to ensure your budget covers both your business and personal expenses for the first year of operation. If you would be getting a loan, the amount should be large enough to cover most (if not all) of this budget.

Knowing what it truly costs to purchase a franchise can help you put better plans in place for the expenses to come.