How to Determine the Cost of Franchise Ownership

Almost all aspiring entrepreneurs these days prefer to buy and own established franchise businesses than start one from scratch. While the United State’s economy is now slowly recovering from recession, many Americans are still financially challenged due to its effects. Entrepreneurs are now wary of investing big money on a new business so they opt to engage on a franchise business instead. Note though that buying a franchise is still a huge business decision to make. It requires a lot of time for researching and assessing options and possibilities. Below you can find some of the most essential factors you need to know and understand about franchise costs.

Franchise costs to consider
The costs to own a franchise include initial and ongoing franchise costs. Thorough researching and assessing of these two costs are a must before you sign a franchise agreement. Remember that financial issues can happen even in the most lucrative offers or deals.

You are required to pay an initial fee to open a franchise. The initial fee commonly starts with several thousands of dollars. A franchise ownership fee is usually around $20,000 to $30,000. Moreover, home-based and mobile type businesses generally require lower franchise fees. In addition, franchisors may also require other necessary financial obligations.

Aside from the initial fees, you also have to buy a franchise ownership. Franchise ownership fees are higher due to some factors like professional fees and the hiring and training of employees. Other expenses such as operating licenses, insurances, inventory and equipment acquisition, and signage all contribute to additional franchise costs. All expenses have to be considered and noted to determine the expected cost of a franchise.

Franchise costs in different industries
The initial and ongoing fees are just a fraction of the entire franchise cost. When you buy a franchise, you should have the asking initial investment of the franchisor, plus a working capital that can support your business on the rough first years until you develop a solid client base.

The total investment cost significantly varies between one industry and another. Here are examples of investment cost range in some of today’s largest industries:

• Auto-repair enterprises –  $200,000 to $300,000
• Fast food chains – from $250,000 to $1 million
• Full-service restaurants –$300,000 to $3.5 million
• Accommodation and lodging industries – $4 million to $6 million

Entrepreneurs who are looking for business franchise ownership in smaller scale must look into mobile and home-based business franchises. These businesses have the lowest costs to open and require less expenses to run. 

All franchisors have their own set of requirements and procedures, thus, making franchise costs different among businesses within the same field. Initial fees commonly include all the training, support, as well as assistance on business site selection and equipment costs.  Since there are no standard policies or rules that apply to costing, you will need to consult a trusted business broker to have your prospective business assessed for a fair and reasonable value estimation.For instance, the inventory costs can start from $20,000 to $150,000.

Your working capital is another factor to consider. This is really important in opening a franchise, for this will give you the funds you’ll need during the first few months or years of operation until your business starts to earn a stable income. Keeping all these in mind, the costs to purchase a franchise business can be higher or lower than what you initially expected.

Not thinking about the money and effort you need to invest to own a franchise business, this career move can really be a fulfilling and rewarding experience. Considering the lower risks and investment costs, it is more convenient and easier to purchase a franchise than start one from scratch. Your investment money can double in no time as long as you do it right. Ready to calculate the cost of your chosen franchise opportunity?

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