If you are an aspiring franchisee, you will soon discover that getting funding will be the biggest hurdle towards achieving your dream. With startup costs ranging from $10,000 to $1,000,000, you have to look beyond your money to bank loans, SBA loans, alternative lenders, investors, crowdfunding, and franchisor assistance. This funding will be used for purposes like:
The franchise fee gives you access to the franchisor’s proprietary business structure, and it includes operations manuals, practical training, computer software, startup kits, and access to suppliers. You will get the right to use the franchisor’s products, trademark, and name after paying the initial fee and signing the franchise agreement.
Franchise fees vary depending on the industry, and they can even differ between franchisors in a similar field. For example, McDonald’s’ initial franchise fee is $45,000, while that of Pizza hut is $25,000.
In addition to the franchise fee, you will also pay ongoing fees for marketing and royalties.
Legal and Registration Costs
The legal fees of starting a franchise business can surprise you, especially if you have under-budgeted for the costs of hiring a franchise lawyer. The lawyers will draft essential legal documents like the franchise agreement and disclosure document, in addition to license agreements and trademark protections. These legal documents will likely cost you a few thousand dollars.
You will also need to file initial paperwork with the attorney general in your state, and you can expect to part with $1,000 to $2,000 during the process. It is better to hire a lawyer since the law and taxes on franchise businesses are incredibly complex.
Inventory and Merchandise
If the franchise business involves a specific product, you will have to buy the inventory to get started. All franchisors emphasize the consistency of their products, which is why they set product standards and requirements. Some franchisors will require you to purchase inventory in specific volumes. You may also need vehicles, equipment, furniture, and other supplies to get your business running.
You will need to set aside money from your business loan to fund the day-to-day activities before the business becomes profitable. While you can set aside money to cover several months, the best approach is to work with a two-year period. The franchisor will estimate the required amount, but you should also perform your calculations.
Most people mistakenly think that starting a franchise business is easy because you will be working with a tried-and-tested business model and in-built support. However, you cannot run a successful franchise if you cannot access the right kind of funding to cover the high costs of starting one. Contact Ambition Funding Solutions to discover the ideal funding options for you.