How Much Money Do You Need to Start a Franchise?

Are you wondering how much money you will need to start a franchise? Well, in that case, you're in the right place. That's what this article is about.



In premise, to become a franchisor, most advisors recommend that you have at least $500,000 in the capital. However, that is a very broad-target number, and it does not include the increases in time dedication that a franchise takes. 

In this article, we will cover all of the common necessary costs that are required to start a franchise. As well as some secondary costs that will ensure your franchise is successful. 

So, if you'd like to get your franchise started as soon as possible, keep reading.

Start A Franchise: Consider the Costs

First and foremost, the best place to start learning about franchising is at the International Franchise Association. The website has a variety of resources that will help you throughout the process. 

In general, the cost to start a franchise ranges from $20000 to $90000. However, the actual costs will be variable based on what franchise team you communicate with, the industry, and the level of assistance you require. 

Now let's take a look at some of the necessary costs in detail.

Legal Fee Development

The FDD is a legal document that provisions the legal structure for the franchise system, and it also includes all of the necessary documentation, such as the franchise agreement between parties. 

As a legal document, it must be prepared with an experienced lawyer and during this process, the legal team should advise you upon developmental structures, such as multi-unit agreements, individual unit franchises, etc. But the process should primarily focus on developing a competitive position in the marketplace. 

Legal development should include trademark legalization and entity incorporation. 

The estimated cost for the FDD is about $30,000.

Operations Manual

The operations manual is a private document that is provided to franchisees to instruct them upon operating their business. Although the operations manual is not part of the FDD, as it is confidential, the FDD will cover the table of contents from the manual.

Way too often new franchisors prepare their manual with well-developed systems and believe that the manual will be improved over time, and others hire development specialists who can create an outstanding plan from the get-go. 

If you are working with another party, the cost estimates will vary based on their level of assistance. 

The cost of this process can range from $0 to $25,000.

Financial Statement

As part of your franchise process, you will have to establish a corporate entity to serve as the franchisor. It is the new entity that will issue the FDD, as well as sell the franchises. And under many state rules, your FDD must include audited financial statements.

Even though your corporate entity is new and has no activity, you will still need to get audited financial statements. This means you have to pay a licensed CPA to certify the statements in your FDD. 

The cost for this is about $4000.

Registration & Filing

As you franchise, you will have to incur some filing fees. For instance:

1. Incorporation fee that is paid to the state in which you incorporate (about $300)
2. USPTO fees for trademark registration (about $250 for each trademark)
3. FDD fees paid to the registration state when authenticating FDD (about $500)

Most franchisors register their FDD in several states, but this number can gradually expand over time to expand upon their business. 

The estimated cost for this entire process is about $3000.

Franchise Website

At the most primitive level, you will have to create a franchise sales website. Simply adding a webpage with a contact form is not enough, and it will push people away. 

You have to invest in something that educates prospective franchisees and explains how your franchise will improve their lives. As well as why you are different from the rest. 

The cost of this about highly-variable, so we cannot provide an average.

Brand Positioning

As you check out other franchisors, you might find that they are all pretty much the same. It's important to spend time researching their offers and then write web copy, as well as unique selling points that differentiate you from the rest. 

This can be done on your own or by a professional. It's important to stand out because almost all franchisors say, "We provide training...". Ok, that's great, but what else?

The cost for this ranges from $0 to $3000.

Sales Presentations

To remain consistent with your brand positioning and website, you will have to create presentations and sales material that speaks about your brand and its story. You have to educate and engage prospective franchisees.

This can be done on your own or by a professional. Cost ranges from $0 to $2500.

Public Relations

As a franchisor, you probably won't have a track record of successful franchisees for a while. In this case, you need to build up some brand validation and the best way to do that is with PR. You need your brand to be talked about by articles and on social media.

The cost for this can range from $10,000 to $30,000.

Advertising

Paid advertising is performed in a myriad of ways. It can be done on social media, on Google, and in many other places. You can try and do this on your own, but the best approach is to hire an agency that has lots of experience with ads.

Conferences & Broker Organizations

Along the way, you should consider attending IFA conferences to gain more insight. You should also join a broker organization to boost your network.

The estimated cost for this is about $10,000.

For a final thought, we will leave you with a word of caution. Most advisors in the business will tell you that $500000 is enough to start working on your franchise, and it is true. 

However, they don't tell you that you will have to work really, really hard for the next several years before you even start to break even, and in some cases, the time can take a toll on people.

Franchise Development for You

Now that you know what it takes to start a franchise, you are well on your way to dip your feet in the water and start your journey. In any case, this is your choice and your opportunity so it's up to you to decide what is going to happen.

However, if you don't want to do this alone, and want to do it right, get in touch with us and we will happily work with you to develop a strategic and efficient franchise plan.