Anyone wishing to become a business owner typically starts with the same basic question:
“How much will it cost me?”
Buying into a franchise, that is, buying a license to sell a company’s products, offers many financial advantages. There are great franchise options for under $100,000, significantly lower than trying to build from the ground up with an original idea.
Typically, the cost of a franchise can range anywhere from about $50,000 up to $1 million, somewhat more for restaurants. You will, of course, want to do your research, or due diligence, and as you do, you will learn the initial investment from the Franchise Disclosure Document (FDD), as well as from talking to existing franchisees. In the FDD, they will list an amount for working capital (extra capital to support the business until it becomes profitable). Make sure to verify with franchisees that this is enough or if they needed additional capital, as they built their business.
- Typically service-based models (no build-out needed) can be run from a home office or an office location. These can range from $50,000-$200,000 on average.
- Retail based businesses that have a location, typically can range from $250,000-$1 million or more with higher amounts typically representing restaurant franchises.
As you evaluate your budget, it’s important to know how much of an investment that you can qualify for and how much you are comfortable investing. Be sure to separate clearly the various financial terms used, such as net worth, liquidity, down payment or initial investment. A smart approach before you decide your budget could be a pre-approval to understand financing options and the pros and cons of each strategy. This is typically done with a financial institution that specializes in franchising, not through a local bank.
Other practical considerations:
- Will you keep your job in the beginning?
- Will your spouse or partner continue to work?
- What is your monthly budget before the business?
- Do you have health insurance coverage for you & your family?
The right franchise for you needs, obviously, to be a good fit financially. Remember, most of your information will come from talking to existing franchisees during the due diligence process. The better your due diligence, the better your chances of success!
