When you buy into a Franchise, you are buying into a proven concept or way to run a business. You buy into the brand, the system, the processes, the product, the service and the people. The most common question I hear in Franchising is how much does it cost to open a Franchise?
There is a simple way to calculate the investment before making such an important decision.
First, start out by figuring out the cost to start a business in the industry you are exploring. How much would you need to spend to start a business if it were not a Franchise? You will need to consider a lot of different costs including:
- Inventory, how much, what types, where do you buy it.
- Location Lease or Purchase, if leasing you will most likely need first month, last month and a security deposit, so 3 months up front. Maybe more depending on your credit, the landlord and the area.
- Grand opening advertising, you need to let everyone know you are in business right?
- Hiring and training employees, you will need to pay some of these employees before you open since they will need to help you.
- Location buildout, furniture, fixtures, computers, customer waiting area and more
- Equipment, what do you need to purchase to run the business? Computers also.
- Working capital, you will need money to support your new business during the first several months until you start to see revenue coming in from customers.
There are other things to consider like: Insurance, Signs, Licenses and more.
Add all of those things up and that will give you an idea of what it cost to start a business like the one you want to open.
Now, let’s talk about the cost to start the Franchise.
The only cost that will be different in this scenario will be the Franchise Fee. This is the up front fee you pay to the Franchisor for their help in opening your location, training, startup assistance and the right to use their name & systems.
Let’s look at an example. If you wanted to open a business in a particular industry you might spend $100k or more.
If you wanted to open that business as a Franchise you would add the cost of the franchise itself to the cost of opening that business. So if the franchise fee is $35k, you would add that to the cost of opening the business.
For example: Cost to open the business = $100k + cost to buy the Franchise = $35k and add those two together you get $135k.
This is just an example.
The point is, the cost to open the Franchise is the dollar amount that is above and beyond opening the business.
In fact, many times it will cost you less to open the business if you buy a Franchise. That is because of the economy of scale, the proven systems and access to suppliers.
If a Franchise company has 100 or more locations their buying power is larger than yours will be as an individual startup business.
For example, you may pay less for inventory, training might be included, they may help you find a location, signs might cost less because 100’s of locations are buying signs from the supplier.
There is another thing to consider when you evaluate the cost to open a Franchise. Getting it wrong over and over before getting it right. When you open a Franchise you will receive a lot of startup assistance, the Franchisor will help you get it right the first time.
They have already made the mistakes, had the bloody noses and black eyes. You may think you will get it right the first time but you won’t. If you open a business on your own you WILL make mistakes.
Opening the same business as a Franchise should help you stand a higher chance of success and help reduce your risk of failure.
That is what you are really buying when you start a Franchise, so consider How much does it cost to open a Franchise?
I hope you were able to get a few pieces of information out of this article. Feel free to reach out to me. I love talking about opening franchises. You can email me here: john@openafranchise.com