(FS5) The Basic Costs of Setting Up Your Franchise
If you are trying to get a better understanding of how much it will cost to set up your franchise, then there are several aspects that will come into play. This is why it is helpful to understand what you may encounter. Keep in mind that there may be other fees and costs that you will need to handle as this is a basic overview of franchises in general rather than getting into individual industries or companies.
Franchise Fee
The franchise fee is something you will have to pay no matter what franchise you buy. This cost is designed to help reduce the cost the franchisor pays for franchisee acquisition. This can include aspects such as screening applicants, finding applicants and training. The franchise fee you pay may also cover aspects such as site selection and development, ongoing support and other aspects so make sure you know what this will cover.
Other Costs for the Startup
Here is a list of some of the other costs that you may need to pay when you buy a franchise. Keep in mind that the list of other charges will change depending on the company. All the charges you will be responsible for will be listed on the FDD, including:
- Location Costs
- Fees for Contractors
- Architectural Drawings and Professional Fees
- Equipment Fees
- Sales Tax and Freight Charges
- Signage and Decor
- Insurance
- Landscaping
- Open Inventory
- Improvements and Construction
Labor Costs
Hired help is essential to get your business up and running as well as to keep it running. There are many types of hired help that you will need, ranging from employees to professional services. Here’s what you need to know about the different services you may need to hire.
In most franchises, your training fees will usually be paid as a part of the franchise fee. However, you will be responsible for airfare to get to the location, hotel accommodations, and other aspects of the trip for yourself and any staff you bring with you.
There will also be labor costs for your pre-opening. This will include hiring a manager if you will not be filling this role in your staff. it is important that they understand the day to day operations before your business opens.
There are also professional fees that you may have to pay for the startup. This can include aspects such as architectural and zoning professionals. You will also need to have an attorney that you can discuss legal matters with as well as an accountant to ensure that you keep your books in order.
You will need to make sure that you have adequate working capital. This refers to the money you need to keep up with your ongoing expenses that are not covered by your revenue. The type of business you have will determine how much working capital you need. In some cases this may be two months or it may even be two years.