Franchising is a way for you to start your own business, but with a company to help you with many of the start-up materials and much of the advice that you need. The cost of owning a franchise is the combination of franchising fees and your out-of-pocket expenses. If you are looking to start a franchise with little capital, you will want to pay close attention to the true cost of owning a franchise and find the franchises that offer a cost of ownership that is within your means.
The True Cost of Franchising
When a franchiser gives you a price on a franchise, that price only encompasses the licensing fees necessary to set-up your franchise. Depending upon the kind of franchise you are looking at, the costs could be much more than just the franchising costs. Franchising involves many legal contracts and documents, so you should retain a lawyer to help you finalize your franchise. The cost of the franchise license normally does not include building costs for your location, the cost for materials to make your product or stock shelves, the cost of employees, and the cost for an accountant to help you keep track of all of these costs. Before settling on a franchise find out exactly what your franchising fee covers, and then be prepared to work out a spreadsheet to help you determine what costs you will be responsible for. The franchising fee and your out-of-pocket expenses make up your total cost of franchising. Many times, a franchiser will help you out by giving you a total start-up estimate, but always check those numbers to make sure you are getting an accurate estimate.
Some of the more reasonably priced franchises to start are usually cleaning services or financial service companies. These companies will normally have lenient location requirements, but very strict customer service guidelines that you will have to follow. The advantage to having a franchise with a national cleaning service or financial company is the national advertising and name recognition that your franchise will come with. In many cases, you can expect to start one of these franchises for less than $10,000 for everything, including your location and supplies.
Some service franchises, such as learning centers for children, have low franchise fees but very high out-of-pocket costs. It is possible to get a franchise license from a nationally recognized learning center for $2,000 or less, but a franchise may cost you in excess of $50,000 after you have set up your location and hired employees. The advantage of a service franchise such as this is that the franchiser will normally be very aggressive about getting you enough business to make the franchise profitable. It is up to you to maintain and grow the business.
There are some very popular cosmetic companies that will allow you to start a franchise for no cost, but you will have some very high out-of-pocket expenses. You will be responsible for purchasing your own catalogs, your own business cards, your own advertising and arranging your own marketing. But you will be doing so with the backing of a very popular company name that can allow you to start to sell products almost immediately. Your initial franchise fee can sometimes be nothing, but you may wind up spending anywhere from $5,000 to $10,000 to make your business successful.