How Much Does it Really Cost to Open a Franchise?

Welcome to another episode of Atlanta Franchise Today with host Leslie Kuban, expert franchise consultant and owner of FranNet Atlanta. Atlanta Franchise Today is dedicated to bringing entrepreneurs and business owners the best practices and tips for their franchise goals. In this week’s segment, Leslie tackles one of the top questions she gets asked by clients exploring franchise opportunities — How much will it cost? 

Transcription: 

Leslie Kuban:
Hey, everybody. Welcome to another episode of Atlanta Franchise Today. I’m Leslie Kuban. One of the top questions I hear from my clients exploring franchise opportunities is, how much does it cost? What’s the investment going to be to get into a good franchise business? I encourage you to think about the cost in terms of three different buckets of money. Bucket one is the franchise fee. When you get into franchising, there are various fees that you’re going to pay, but the franchise fee is a one-time fee paid giving you or me, as a new franchise owner, access to that franchise brand’s playbook of success.

Leslie Kuban:
So what are some of the things that you’re going to find in this playbook? There’s intelligence on how you acquire customers, what are the cost effective lead generation and advertising strategies that will have clients walk through your doors. If there’s real estate involved, you’re going to need some help in knowing how to secure that location, negotiate the lease, work with construction and build out in a cost-effective manner.

Leslie Kuban:
Many times you receive great discounts on equipment, on inventory, on the things that you need to get started in your business. So preferred pricing is another benefit that one receives in paying that one-time upfront franchise fee, sometimes to the point where it’s greatly offsetting that upfront franchise fee. So what’s an average franchise fee? Across many brands, I see that can be anywhere from about 25 to $50,000 for a single territory or single location. Now, a lot of people I’m working with, they have greater aspirations. They’re looking to be an empire builder and open multiple locations within that brand. Many franchise brands would prefer to have one franchisee who owns five locations versus five franchisees who each own one. So many franchise companies build in some incentives for those empire builder franchise owners who want to open multiple locations and they’ll discount that second, third, fourth, fifth location franchise fee.

Leslie Kuban:
Now a natural question is, is this franchise fee worth it? And I’ll be discussing that in a future upcoming episode. So let’s move on to bucket number two, initial startup costs. These are items that you’re going to pay for once as you’re starting your business such as putting the sign up on the front of your building. If it were an automotive business, it would be putting the car lifts into the garage and it’s paying for the initial equipment and inventory that you’re going to need in the early months of your business. Now, how much are these one-time startup cost? It does depend on the type of business. The good news is there are many service businesses with relatively low startup costs that they are asset light. Maybe all you need are some supplies to get started and not heavy equipment or heavy location costs.

Leslie Kuban:
Let’s move on to bucket number three, working capital. What I mean by working capital is just having cash for the ongoing costs that you know that you’re going to have for your business such as rent that you’re paying to the landlord for your location, payroll for the employees that you’re hiring, advertising and marketing costs and things that you know you’re going to be spending money on on a monthly basis. So how much working capital do you need? Again, it depends on the business model, but there are many owner-operator franchises where you are heavily involved in running the day-to-day operations of the business and you don’t need a location. Maybe it’s home-based or maybe you’re utilizing mobile vehicles going to your customer’s homes or place of business. And many of those franchises, that total investment considering all of those three buckets of money, can be under $150,000. Now, if you do need real estate and you do need to hire a decent-sized staff just to open your doors, we are looking at over $150,000 most likely to get you started.

Leslie Kuban:
So my tip in getting your arms around what your franchise business of interest is going to cost you is to go talk to franchise owners, people who already own that business, they’ve made their decision to be a part of that brand, they’ve made their investment. I think you’ll find most franchise owners are transparent and generous with their time. They were in your shoes at one time trying to make a good decision for their families and their careers. They probably asked many of the same questions that you’re going to ask, and they can really give you a handle on what their experience was with the costs of getting into the franchise, what their startup costs were, how much working capital they found they needed. And that may depend on certain independent decisions that they’re making on how to run their business day to day.

Leslie Kuban:
Some franchise owners will take on financing, others will not. Some franchisees will be very active in their business, others will be hiring people to handle more of the heavy lifting. And how they are handling those pieces of their business will influence how much working capital they need. So you want to make sure you’re asking franchise owners these specific questions. So when you hear their answers about how much working capital they need, you understand what the language is that they’re speaking.

Leslie Kuban:
I hope this has been an informative and useful episode. I appreciate you joining me and look forward to seeing you next week again on Atlanta Franchise Today.

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