Franchise Start-up Costs: What to Look For & How They Vary
A franchise is a business that involves selling products or services with the backing of a franchisor. The franchisee licenses everything involved with its operations for an initial start-up fee and recurring licensing fees.
How much are these fees?
If you are interested in becoming a franchise owner but aren’t sure about the financial requirements, you can perform a quick online search to get a general idea. Still, getting more details is essential if you want to know what to expect. More information helps you make a more informed decision about whether or not to buy a franchise.
Why Buy a Franchise?
Buying a franchise can be a smart financial move for someone wanting to step into the business world. Franchises are ideal for people who don’t want to build a business from the ground up, but want to rely on a proven framework of success. Traditionally, franchise owners can work with an established model, and aspects like branding and advertising are already in place.
Starting a business requires a lot of time, effort, and money. Business owners might not have access to established names and work models, and they have to worry about marketing plans and costs. They have to know the industry they’re getting into and keep up with it to maintain an edge over their competitors.
Franchises can help eliminate the stress of starting an original business. For these reasons, savvy entrepreneurs might find franchises appealing and opt to buy one instead.
Franchise Start-up Costs
Start-up costs vary by industry, location, and specific brand. The costs can range anywhere from less than $10,000 to over $5 million. The average cost varies, from about $50,000 to $200,000.
These costs can include:
- Professional fees: Entrepreneurs should have an attorney review the contract and even hire an accountant to make sure the arrangement is financially feasible.
- Rent/Mortgages: Some franchises might not require a physical location for operations, but if they do, then rent deposits or down payments on mortgages must be paid.
- Construction: If a physical location has to be built or renovated, this is just one more expense to pay before the doors open.
- Utilities and maintenance: If a physical location is necessary, you must set up utilities. They usually require an upfront deposit, and you might also have to set up maintenance ahead of time.
- Supplies and equipment: This includes product inventory (if applicable) and general office supplies.
- Furniture: Some franchise companies might require all locations to have matching furniture or decorations. This is another start-up cost that potential franchise owners should prepare for.
- Marketing materials: These include signage and other promotional items. Some franchise companies provide them, but some don’t.
- A franchise fee: This one-time licensing fee allows the franchise owner to use the franchiser's brand and support system.
- Insurance: Examples of necessary policies for franchises are management and employment practices liability insurance.
- Training: While some franchise companies cover the cost of training, the franchise owner may be responsible for travel, food, and lodging bills.
- Working capital: Although not necessary, franchise owners should have enough money saved to cover their operating costs and living expenses for several months.
While franchise start-up costs might seem overwhelming, it costs even more money to start a new business. A franchise company's reputation is a significant advantage over a company that no one’s ever heard of before. A franchise’s consistency can also more than make up for any hefty start-up costs.
How To Get Accurate Information About Start-Up Costs
The problem with franchise start-up costs is that they vary by industry and area. Every franchise has a unique business model and start-up cost. Factors such as insurance prices and taxes also influence start-up costs.
What also doesn’t help start-up cost research is that information sometimes differs from source to source. We can’t stress enough that the best sources of information are existing franchisees. Entrepreneurs researching franchise startup costs should focus on the industries they’re interested in so they can get an accurate idea of what it entails. General statistics can help to a point, but contacting a franchise company or two can be a better help than anything else.
Bath Tune-Up is Here to Help
If you are interested in purchasing a bathroom remodeling franchise and have questions about start-up costs, get in touch with a company like Bath Tune-Up. Our team of experts can help potential franchise owners get the answers they need to invest in their future.
Being prepared is essential when starting a business. Knowing all the expenses can reduce “sticker shock” when considering a new venture. We encourage entrepreneurs to do their due diligence before purchasing a franchise, and that’s why we show you all of our costs and explain what they cover on our Investment page. Get in touch with us today for more information on getting started.