Wednesday, November 25, 2015
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How Much Does It Cost to Buy a Franchise?

Anyone who has ever considered a franchise opportunity has probably wondered, “How much does it cost to buy a franchise?”  For many aspiring entrepreneurs, franchise ownership can seem a lot more complex than a single owner-operated business, but it doesn’t need to be that way.  Before you start shopping a Franchises FSBO directory, it is important to understand the basics about the underlying costs of franchising.

Every franchise has its own unique financial requirements, but the following costs are standard for almost every franchise opportunity.

Franchise fees: This is the initial cost for the right to own a franchise location.  Most of these fall between $15,000 and $50,000.  The franchise fee will usually cover the cost of support, training and site selection, but in many cases this is just an up-front licensing fee for the right to use the business’ name. Before deciding on a business, find out what is covered by the franchise fee.

Legal fees: Once you decide to buy a franchise, your attorney will help you review the Uniform Franchise Offering Circular (UFOC) and the franchise agreement.  Plan on spending anywhere from $1,000 to $5,000 for an attorney to review these documents.

Build-out costs:  Your franchisor will give you an estimate on the cost of building your franchise, based on the site location you choose.  These fees include furniture, equipment, fixtures and signage.  Home based franchises don’t usually include any build-out costs, but you still may need specific equipment or software in order to get started.

Inventory:  In the case of retail franchising, where you will be selling a specific product, you will need to start out with an initial order of inventory.  Depending on what you will be selling, this initial investment could range from $20,000 to $150,000 or more. 

Working Capital: This is the amount of cash you will need to have available on a day-to-day basis.  Some franchisees only carry a few months worth of working capital, but it is safer to have two or three years worth of funding.  Each business model is different, so your franchisor will give you a general idea of how much cash you should have on hand. 

Miscellaneous supplies:  Every business needs certain supplies in order to do business.  Again, your franchisor will give you an estimate on what is needed.

Searching through a “Franchises for Sale by Owner Directory” is a great way to start gathering knowledge about franchising.  In addition to learning about the potential income you will earn from buying a franchise, you will also find out about financing, industry trends, and how much money you will need to be successful. 

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