Last month we did a LinkedIn poll to find out how much do you think it costs to invest in a franchise.
How much does it cost to invest in a franchise?
- 81% of you think that it costs between $100,000-$1 million
- 12% believe it costs about 10,000
- 7% of you think that it costs an arm and a leg
You guys are smart and you’re completely correct that it’s somewhere between $100,000 and $1,000,000. However, that’s a huge range of an investment. This number should include the franchise fee and all of the capital that you need to open your business, but also enough working capital (money to pay the bills) until your business becomes profitable. You can validate these numbers with franchisees at the appropriate time in the process.
Many people believe that you need millions of dollars to start franchises and it’s simply not true. There are investment levels for most budgets, depending on your comfort zone and abilities.
What types of investments are in that range?
The lower range is typically a service-based business, meaning something that can be operated out of a home office or an office location. You can keep your overhead & investment lower. Since you don’t need to have a brick & mortar location, you should be able to get up & running fairly quickly.
Some people ask me if they can grow in a service-based business, or are they just buying themselves a job?
Great question!
In a service-based business, you can own a single territory. That is ideal for someone who enjoys being hands-on, involved and growth is not a top priority.
However, if growth is a priority, you are able to scale the business into multiple territories without much more overhead. For example, you may be able to run multiple areas out of one office, saving you overhead and keeping your margins healthy.
Lower investment does not always mean lower revenues. It completely depends on the business model and the owner’s capabilities and goals.
The higher investment levels tend to be a brick-and-mortar location. These tend to require real estate, a build-out and can also be manager-run (the owner has more of a strategic role). Many of these options are favorable for someone who wants to keep their job in the beginning and strategically grow their franchise. These types of opportunities tend to lend themselves to people who want to build a business and scale into multiple locations. Think more of building a business instead of buying a job.
As you move through the franchise research process, you will want to understand what’s a reasonable investment for you, a budget that makes sense and funding options are available. Ideally you will compare the different returns on different of types of investments to find the best investment for you & your family.
Be sure to find a great advisor who can help you through this process and to start to research the different financing options to be sure that you find the best investment level for you!
