How much does a franchise cost?

by FBR

Wow... that's a tough one! It's similar to buying a car or a house - there is a huge range in price between various franchise opportunities. What's important to understand are three key pieces of information related to cost: 1.) initial capital required, 2.) total initial investment, and 3.) on-going or recurring costs. Here's the breakdown...

Initial Capital Required
This is the amount of cash you will need on-hand in order to be considered for a specific franchise. Like buying a house, you don’t necessarily need to have the total investment up-front. There are many financing options available to small business owners, especially when your new business involves real estate, equipment, etc. It’s important to remember that while a franchise business may cost $150,000 (initial investment), you may be able to get involved for much less money up-front.

Total Initial Investment
This is the total cost you will incur in getting your new business up in running. As mentioned above, this isn’t necessarily all out-of-pocket cash, as you may be able to finance different pieces of the business. Many franchise companies will give a breakdown of the total initial investment on their websites, and it is also outlined very clearly in their franchise offering circular (UFOC).

On-Going / Recurring / Other Costs
It’s also critical to understand the costs you will incur after you launch your new business. How much operating capital will you need to cover your expenses until some cash starts coming in? When do you need to start paying royalties and advertising fees to the franchisor? What are all the other costs you might run into? You need to have a good understanding of these potential expenses and budget for them before you get started.

WARNING – CASH IS KING!
This is so critical, it is worth repeating… CASH IS KING! The number one reason businesses and franchises fail is that they run out of cash. You hear it over and over again and nobody ever thinks it will happen to them. Well guess what – I can guarantee that YOU will run low on cash at some point in your new business and you have to have a Plan B.

Every business takes longer to get started and costs more than originally expected – and you need to plan for it. If you think you’re going to need $150K, you should plan on getting $300K – or at least have a plan to get additional funding when and if you need it. If you think you’ll hit break-even after a year, what happens if it takes 2 years… or even 3 years? You need to a Plan A, a Plan B and a Plan C.

Just Answer the Question
So to answer your original question, you can buy a franchise for as little as $20,000 or as much as several million (restaurants and concepts requiring real estate are generally the most expensive options). However, the vast majority of franchise opportunities fall in the $75K - $200K range - many of which only require $30K - $50K to get started. That said, most people can finance a franchise with home-equity or a loan from Uncle Pete.