How to Calculate Your Franchise Startup Costs

Launching a business can mean a fair amount of uncertainty and risk. How many customers can you expect to walk through the door? How can you get a leg up against competitors? Where should you devote your precious capital as the company begins to grow? 

Not all franchise startup costs are created equal. Depending on the type of franchise you're opening, you might have to pay more up front to get started. 

Initial Fees

The initial fees you'll pay to the franchisor are used to secure the right to use their trademark and sell their proprietary products or services. While this saves the hassle of having to start from scratch, you can expect to pay anywhere from $10,000 to $100,000 in initial fees, depending on the type of franchise you are opening. 

Location, Location, Location

Start with what will probably be the biggest overhead cost: the property itself. Unless you plan to run a business from your basement, you'll need a retail office with enough space for a sale floor, inventory storage, and office functions. This cost is the easiest to calculate because it won't change: you lock in a rent or a business mortgage, and the price is set. 

Rent is most often calculated per square foot. In a big city, rent may be as much as $10,000 per month. Rural locations will have lower rent costs, but also a smaller customer base. The cost of utilities should be included in expenses, but separately from rents, given that they are more variable and will change with less predictability. Don't be afraid to invest in real estate, however. Obtaining a loan is easier than you think for your franchise. 

Outfitting your franchise 

Depending on the type of franchise you're opening, you might have to invest money into building or outfitting a location to meet your franchisor's specifications. Factor in whether you have to build a location from scratch, or you need to renovate an existing space. 

If you have to build your location, be sure to factor in items such as a land purchase, building permits, contractor fees, etc. Even if you're just renovating a space, be sure to consider all facets of your location such as furniture, lighting, signs, equipment, security, etc. 

Working Capital

This is the money you'll need to pay for daily costs. It's advised to have enough money to operate your franchise for at least six months. This money will help you to grow your business in its first months. Oftentimes it can take a little while to get things started. It may be a few months before you'll generate enough money to cover all your expenses. 

Royalty Fees

As part of owning a franchise, you'll be expected to pay royalty fees to your franchisor. Generally this cost is a percentage of your gross sales and is a monthly expense. The percentage varies from franchise to franchise, but you can expect it to be somewhere between 4% and 12%. 

Third Party Support

No business thrives by itself. A dedicated team of support professionals, from accountants to bookkeepers to attorneys, will help a franchise to succeed in the early days. These services are not cheap, however. You want to trust these professionals with your money, your business, and your time, so it is crucial to form strong links before you open your doors to the public.

Need Funding To Cover Your Costs? 

When it comes to all things funding for your franchise, LENDZEE can help you acquire the capital you need to start or grow your business. As you start your franchise you have enough to worry about, so let us help you secure the funding you need.