It’s all about the money, right?
- How much money you’ll need to buy a franchise
- How much money you’ll need for your ongoing expenses
- How much money you’ll be able to make when you become a franchisee
In this post, I’m going to show you how to get your money questions answered.
How Much Money Will You Need To Buy A Franchise?
A lot of people start searching for a franchise to buy without knowing what all the upfront costs are going to be. That’s a mistake.
Think about it; you find a franchise that you feel makes perfect sense. You like the concept, it’s affordable, and you think it could end up being a wonderful fit for your local area. Your excitement builds. You “see” yourself as the franchise owner.
That is until you see what the total upfront investment is to open your dream franchise business. Instantly, that “affordable” franchise opportunity becomes unaffordable. That’s because you made the (common) mistake of thinking that the “upfront franchise fee” was the upfront investment. It’s not. The franchise fee is only the “license” part of the deal
“Your initial franchise fee will typically range from tens of thousands of dollars to several hundred thousand dollars and may be non-refundable. You may face significant costs to rent, build and equip an outlet and to buy initial inventory. You also may have to pay for operating licenses and insurance and a ‘grand opening’ fee to the franchisor to promote your new outlet.”
Tip: Make sure you know what the total upfront cost is in the franchise business opportunity you’re interested in before things get too far.
How Much Money Will You Need For Ongoing Expenses?
The money you’ll need to open for business-to start your franchise business is only part of the picture. You’re going to need money to operate the business day-to-day.
Most of today’s franchisors include a certain amount of “working capital” in their upfront investment estimates. *
*As you’re investigating franchise opportunity cost, you’ll see that there’s always an upfront investment “range.” That’s because there are always variables such as rent and utilities; market conditions can vary significantly from one geographic region to another. And working capital amounts vary depending on the franchise.
I’ve seen working capital requirements of $15, 000 up to $75, 000 or more.
The bottom line: You’ll need working capital to keep your franchise business afloat. Read more about working capital here.
One more thing: Don’t forget that you’ll need personal capital, too.
For example, if you have a mortgage, you’ll still have to pay that, along with all of your other household expenses. That’s why it’s important to set enough money aside for your ongoing non-business expenses. Your new franchise business won’t be generating profit early-on, so plan ahead!
How Much Money Will You Make?
It’s your top question, right?
You want to know how much money you’ll be able to make if you end up buying the franchise of your dreams. There are a couple of ways to find out.
The first way is by reading Item 19 of the Franchise Disclosure Document (FDD) that the franchisor sends you.
“Item 19 covers any statement that would inform the reader about the financial performance of existing franchised units or about how a particular franchise might perform in the future. It does not, however, discuss the actual performance of an existing business that is to be sold as a franchise.” Read more at AllBusiness.com*
It’s important to note that not all franchisors disclose franchisee financial information. And the ones that do have different ways of disclosing it. It’s a bit complicated.
That’s why the second way of finding out how much you’ll make is a better way to go about getting this information.
The best way to find out how much you’ll make as a franchise owner is to contact existing franchise owners and ask them. They’re the ones who have made the investment. They’re the ones living the business every day.
Read this article for tips on how to get real earnings information from the franchisees you contact.
In conclusion, it’s important to get all the information you can about the “money” part of franchise ownership. And as you’ve learned, it’s not hard to get.
*Non U.S. Government link