If you’re considering starting a franchise, it’s important that you understand all the fees and expenses you will be responsible for. Many would-be franchisees see that a brand costs $X as an initial investment, and they overlook many of the ongoing fees they have to pay their franchisor, as well as other expenses.
Let’s dive in, shall we?
Your Initial Investment
This upfront fee is what you pay to play in the club, so to speak. The fees typically start around $10,000 and can go up to hundreds of thousands of dollars, though there are franchise options under $10k to consider.
This is a one-time fee, and some brands will offer a discount on it for veterans, minorities, or existing franchisees.
Space Modification
You likely will need to renovate the retail space you purchase to meet your franchisor’s requirements, and that will cost.
Inventory
You may be required to order from franchisor-approved vendors for your supplies, so factor in that cost before you invest in a franchise.
Royalty Fee
Since you’re profiting from the brand name of your franchisor, they’ll want a cut of the pie. The royalty fee is something you’ll pay weekly, monthly, or yearly, depending on your franchise agreement. For some franchisors, you’ll have to pay a percentage of sales; for others, they want a flat fee.
Merchant Processing Fee
This isn’t a fee paid to your franchisor, but rather to the company that processes your credit card payments. You may have a flat monthly fee for the privilege of accepting credit cards, as well as a per-transaction fee, around 1-3%.
Labor
Don’t overlook this essential expense! Not budgeting for staff is a surefire way to ensure that you will work 80 hours a week in your business. Factor in as well employee benefits and health insurance if applicable.
Accounting
Unless you plan to manage your own finances, you will need to hire an accountant to manage your books. At the very least, you will need to have one file your taxes.
Advertising
This may or may not be included in fees you pay your franchisor, but you also have the option to invest in your own advertising efforts locally.
Knowing all of the expenses you will incur, both in starting and running your franchise, can help you better plan before you sign any contract.
Susan Payton is the President of Egg Marketing & Communications, a marketing firm specializing in content writing and social media management. She’s written three business books, including How to Get More Customers With Press Releases, and frequently blogs about small business and marketing on sites including Forbes, AllBusiness, The Marketing Eggspert Blog, and Tweak Your Biz. Follow her on Twitter @eggmarketing.