Breaking Down Franchise Startup Costs
Every year thousands of Americans buy into an existing franchise. And no wonder, franchising is a highly popular business model. There were over 785,000 franchised establishments representing over 3,000 franchised brands in 2020. Certainly, there are significant startup costs for every franchise and independent business venture.
Why is Buying a Franchise So Appealing?
Let’s face it, starting any business is risky. Yet there is a lower risk in buying a franchise. Thus, a lower failure rate for franchises compared to solo businesses.
Buying a franchise allows a business to build on some established brand recognition versus starting from scratch. A franchised brand will have an established reputation and some amount of existing brand loyalty.
A franchisor will provide a defined business model, training, operating, and marketing assistance. The franchisor will have defined the necessary supplies and equipment along with the avenues to acquire them. The buying power of the franchisor will facilitate effective purchasing so that startup costs are minimized. Finally, franchises, in general, achieve higher profits than independently created businesses.
What Are Some Typical Startup Costs for a Franchise?
Typical franchise startup costs include:
- The initial franchise fee—seen as a licensing fee to operate under the franchise brand and systems.
- Location expenses include real estate and property improvements and down payments.
- Furniture, fixtures, and equipment.
- Operating supplies.
- Professional services including accounting and legal services.
- Staffing and employee expenses including some employee training expenses.
- Advertising and marketing costs including signage.
- Working capital can’t be overlooked because a new business of any type takes a while for revenues to grow to cover all expenses.
How to Finance Franchise Startup Costs
With some assistance from the franchisor, startup costs can be partially covered in some cases. Other financing sources include commercial bank or credit union loans, SBA loans, funding from alternative lenders, personal “bootstrap” financing, and friends and family loans.
Seek Expert Financing Assistance
Contact Atlas Capital Solutions, based in Pittsburgh, PA for expert financing solutions. Our team of seasoned professionals helps businesses and entrepreneurs navigate the alternative financing landscape to get the funding that you need.