You may know that if you buy a franchise, you’ll have to pay an upfront initial fee, and maybe you’re even aware that you’ll have to pay monthly royalty fees. But beyond that, you aren’t sure how much running a franchise will cost. What fees and expenses are involved long-term?
What You’ll Pay Up Front
Beyond your initial franchise fee, which can be as low as $10,000-15,000 or as high as $100,000 or more, there are a few other expenses you’ll need to handle before you open your doors.
You will need to budget for not only renting commercial space for your franchise but also modifying the space to fit your needs. Will you need a kitchen? Additional bathrooms? Searching for space with as close to your needs as possible can help you cut down on these costs, though you’ll still likely need to do some aesthetic remodeling.
You will also need to cover deposits for utilities, including electricity, internet, water, and sewer. You may also need office supplies and equipment like computers and merchant card processing machines, so factor those into your one-time budget.
And don’t forget marketing. You may need to hire help to set up social media accounts for your franchise, as well as email marketing or advertising. These will be ongoing costs as well, but may incur some larger up-front fees to begin.
What You’ll Pay Ongoing
Check with your franchisor to see how often you will pay royalty fees. Typically it’s once a month, or maybe once a quarter. The franchisor may also require separate fees for advertising or marketing, so review your franchise disclosure document to make sure you’re clear on all franchise fees.
Additionally you will be paying for inventory, supplies, and payroll on a regular basis, so it’s important that you have enough funds in your bank account to cover these without issue.
Don’t Forget Personal Expenses
A lot of first-time franchisees forget about one major and important expense: their own salary! You may decide to forego a salary until you can break even on your other expenses and revenues, but make sure to factor in your personal expenses to the budget you create at the start.<
Because you’re not guaranteed profitability within a few months, you need to ensure that your budget covers up to the first year for both business and personal expenses. If you are taking out a loan, it should be enough to cover the majority of this budget, if not all of it.
Understanding the true cost of buying a franchise can help you better plan for it as a reality.
Susan Guillory 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.