Determining the Initial Costs for Opening Your Franchise

ROBS Small Business Funding Eligibility

Investing in a franchise is an exciting opportunity to manage your own business while benefitting from the resources of a large company. For anyone buying a franchise, one of the first things you’ll consider is how much it will cost to get started. The next question is how much support you’ll actually receive from the franchisor.

Let’s explore what it takes to open your first franchise location.

How to determine your initial investment

Whether you’re opening a franchise or an independent business, you will need not only enough capital to open, but also access to enough working capital to until the business is self-sustaining. Franchisees have an advantage in that the preliminary research on what this entails is already done for them, unlike opening an independent business.

Franchisees pay a franchise fee for a license to open the business. With it comes useful information about what franchisees can expect to invest in getting their location up and running. Franchisors provide resources for securing the equipment, décor, suppliers, site requirements and more. Franchisees can save countless hours on doing this research and making these decisions alone.

Mature franchisors usually offer two resources to help franchisees understand the cost of opening a new location:

  • Data on the existing franchise system: Franchisors can provide franchisees information about what it cost other franchisees to open. New franchisees can also network with existing franchisees to better determine what the initial investment will be.
  • Item 7 of the Franchise Disclosure Document: The Federal Trade Commission (FTC) regulates how a franchise is sold under their Franchise Rule. Within the Franchise Disclosure Document (FDD), franchisors must provide an estimate of the initial investment for franchisees.

Cost of securing a franchise location

One characteristic that makes your franchise unique from the others is its location. While you have some support from the franchisor, it’s largely up to you to secure the right location and get it ready for opening.

Some of the costs associated with preparing your location include:

  • Renting or buying the space: It’s not as easy as picking a spot. You may need to hire a realtor. You’ll also benefit from conducting market research to ensure you’ve selected the best location for your business type and your clientele.
  • Security deposit: Even if you’re renting, you still have an upfront investment of providing the landlord with a security deposit.
  • Professional fees: In most cases, your new franchises’ space won’t be ready immediately. You’ll have to invest in an architect and/or contractor to create the space you need. You may also need to hire a lawyer or other professionals to deal with your local zoning board.
  • Décor and marketing: Once the space is complete, you still need furniture, supplies, signage and more to make your space functional.

Cost of opening your franchise

Once your franchise location is ready, other expenses you’ll have before opening include:

  • Inventory and supplies
  • Insurance
  • Computer hardware and software
  • Staffing and labor
  • Professional fees
  • Working capital

Once the location is open, be prepared to continue investing in your franchise until it is self-sufficient.

Are you ready to open a new franchise location? Tenet Financial can help you secure the financing you need to get started. Contact our funding consultants today or call (888) 901-3335 and select Option 9.