Opening a business is a risky venture no matter how you approach it, but franchising is a safer way to pursue those dreams. Among many other reasons, franchises are legally obligated to provide you with financial information that lets you budget more effectively. By giving you the opportunity to make smarter choices, especially in the first months and years of business, franchising may help you become profitable and achieve ROI faster.

Although the FDD is helpful, it can be difficult for first-time franchise owners to fully understand all of their franchise startup costs and fees. Let’s break down the factors that go into your franchise startup expenses.

Franchise Costs 101

As part of the franchise process, your potential franchisor will provide you with a copy of their franchise disclosure document, or FDD. In the FDD, you’ll find details about your responsibilities as a franchise owner and your franchisor’s place in the market, as well as franchise startup costs and ongoing fees. It’s incredibly useful information to have as you think about how to finance your franchise.

All the information in the FDD is important, but to further explore your franchise startup costs, you’ll want to begin with Item 7. Here, you’ll find all of the costs that go into getting your franchise open, generally laid out as a chart. Since your actual investment will rely on several factors, your franchisor will likely provide a low-to-high range. 

While the exact factors in your franchise startup cost will vary by brand, there are some you can almost always expect.

  • Initial franchise fee: This is likely the first payment you’ll make to the franchisor and is usually due when you sign your franchise agreement. Contrary to popular belief, it’s not a royalty. It goes toward many of the other factors we’ll discuss, including marketing, training, and operational support.
  • Professional fees: As a business owner, you’re likely to need a bigger team than you realize. Unless you come from one of these professions yourself, you will need an attorney to review any legal agreements you make with the franchisor and an accountant to review your financial arrangements. If you can find small business specialists, even  It’s also not a bad idea to establish a relationship with a tax preparer.
  • Supplies and equipment: Even if you don’t need to have a separate brick-and-mortar location for your franchise, you’ll need to obtain tools, product inventory, and anything you may need to set up your office.
  • Insurance: All business owners need some level of insurance, with some requiring more than others. If you have employees, you’re required by federal law to have worker’s compensation, unemployment, and disability insurance. Service-based franchises should also have professional and product liability insurance. Check with your state or locality to see if they have specific insurance requirements.
  • Licenses and fees: It’s important to be in compliance with all local, state, and federal regulations regarding business ownership. At minimum, you will need a business license, which you’ll obtain either from the state, locality, or both. Depending on the kind of work you do, you may also need a federal license or permit. Some skilled work, including many segments of the home services industry, requires specialty licenses from your state or locality. 
  • Training: Many franchisors will cover the cost of training itself, but if you have to attend onsite training, you’re likely to be responsible for the cost of travel, lodging, and incidentals.
  • Marketing: In addition to digital marketing and paid advertising, your grand opening marketing strategy will almost certainly include signs, mailers, and other print collateral. Some franchises provide them, but others don’t.
  • Working capital: All franchisors have financial requirements for ownership, like minimum net worth and liquidity. Your franchisor may also set a minimum for working capital, which should cover your operating costs and living expenses for your first several months to year in business. Even if your franchisor doesn’t have a working capital minimum, it’s highly recommended that you have enough saved to get you through the period before your business is profitable.

Franchise startup costs can also be considerably impacted by whether or not your franchise requires a brick-and-mortar location. If you need a storefront or office away from home, your franchise startup expenses can include real estate, rent, and construction.

What Else Can Impact Franchise Startup Costs?

Even beyond the variance between specific businesses, two things can significantly alter your franchise startup expenses: industry and area. Foodservice franchises tend to have much higher franchise costs than the average home services franchise, with some popular restaurant brands costing a million dollars or more to invest. Likewise, if your territory is in a high cost of living area and you need to work outside of your home, you’ll be paying much more for rent and other associated expenses. 

A Top Low-Cost Franchise: Bath Tune-Up 

Bath Tune-Up is a top low-cost franchise in the thriving home services industry. Our low startup costs make us a great investment for first-time business owners and seasoned investors alike. Your initial franchise investment covers an all-inclusive startup package to make your franchise purchase as turnkey as possible. Bath Tune-Up is part of the Home Franchise Concepts family of brands, a leader in home services franchising, and enables us to provide the support and resources you need to run a successful business. Inquire now, and one of our franchise advisors will reach out with more information.

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