How Much Money is Required to Open a Franchise?

Rishabh Sharma
Rishabh Sharma Jan 05 2021 - 5 min read
How Much Money is Required to Open a Franchise?
It’s always a big question that how much money is required to open a franchise. Here we have categorized the basic expenses to open a franchise and what you get in return for the expenses. Read on to know more that, how many types of expenses are there in opening the franchise business.

The expenses to open a franchise are distinctive for each company, but most of the requirements are similar. Generally, you will be committed to pay a franchise fee to the franchisor, and you'll additionally be liable for all form out expenses for your location, including furniture, installations, and types of equipment and other start-up costs incorporate professional fee, contractor fee, signage, and inventory. Furthermore, when you open a franchise, you'll have to ensure that you have enough working capital to remain in your business.

Basic expenses to open a franchise are mentioned below;

1. Legal and Accounting Fees-

If you are thinking of buying a franchise, you should consult with a professional franchise expert. He/She will help you regarding the review of FDD (Franchise Disclosure Document) and the franchise agreement. They make sure that you understand every single aspect of buying a franchise completely. There is no fixed rate of a professional who reviews these things for you, however, it varies from person to person that how much they charge for such services. The amount of time you spend with the expert will decide the overall rate.

During these types of procedures, you will learn to keep a record of your expenses from the beginning. To keep track of your costs, you should enlist a qualified accountant. The franchisor may give you software or a chart of accounts, and your accountant will help you set up your books and records. Your accountant can likewise assist you in deciding how much working capital you will require in the future for your franchise.

2. Working Capital-

It is an amount of money that is available for the franchise. Depending upon the type of business, it guarantees that your working capital covers a specific timeframe, going from a month to few months to as much as a few years until the business is in complete flow. 

The franchisor commonly gives an estimate of the amount that is required, yet you should do your intensive research on your own to ensure your calculation depends on your market rather than the system average, which may not be the same for your area in some cases. 

3. Franchise Fee-

Most of the franchisee’s fees are somewhere in the range of Rs.1 lakh to 10 lakhs. At times, you may see franchise fees under Rs. 2 lakhs; these kinds of franchise opportunities are typically home-based or mobile franchise which can be operated on a small scale. The franchise fee normally covers the expense of training, plus franchise support and site selection for the same. The facilities provided by the franchisor are included in a franchise fee and sometimes it varies for various companies. 

At times, the franchise fee is only a license(fee for the right to use) to use the brand name. Make sure to measure all the things you are getting in return for the franchise fee.

4. Build-Out Costs-

It is a cost that varies wildly among the franchises. Whenever you have chosen a franchise and finishing up finding a suitable location for the franchise, which is approved by the franchisor, the franchisor can help you estimate your total build-out cost. 

Generally, there are a lot of expenses to includes such as furnishings, fixtures, equipment, and signage. There are other start-up costs to consider, including deposits and insurance, landscaping, contractor fees, decor packages, security, professional fees for civil and architectural drawings, and zoning compliance. 

If you choose to buy a home-based franchise, there are no build-out costs included. There may be other costs such as software applications or PCs and sometimes these costs are included in the franchise fee.

5. Supplies-

Every franchise needs proper supplies in order to do business. It’s the duty of the franchisor to provide you a proper list of supplies you need for the business. Whether it’s a small food franchise where you offer plastic utensils to your customers or a service-based franchise that goes through a lot of office supplies.

6. Inventory-

If you are in a retail franchise where you are selling a specific product to your customer, you must stock up your inventory in order to avoid any complications. As every franchise is different and has different requirements, you should stock up your inventory for the future according to your customer demands.

7. Travel and Living Expenses While Training-

Franchisors will provide you training for the franchisee routinely. To avoid any complications, at least one other employee besides yourself will be required to attend and successfully complete the training program. In spite of the fact that the training itself might be covered by the franchise fee. Generally, the franchisee is liable for training-related travel and living costs. 

With some franchisors, training can last from a couple of days to a month. On the other hand, in some complex franchise systems, the training may stretch out for a long time. It can also be done through classroom training followed by online webinars or classes.

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