Every business requires money to get started, and the funding to cover your operating costs. What are the financial requirements to start a franchise? The answer depends on the type of restaurant, location, and the franchise company. This guide will show you how to start a franchise and highlight the factors that can influence the cost of owning a restaurant franchise.
Initial Investment: What Is the Franchising Fee?
One of the first costs you’ll incur is the franchising fee. This fee is set by the franchise company and can vary considerably. The fee should be one of the first requirements to start a franchise that you look at when conducting your initial research.
The franchise fee gives you the right to operate a franchise location and represent the franchisor’s brand. Usually, the franchise fee is paid as a lump sum at the start of the franchising relationship, though some companies require ongoing franchising fees monthly or yearly.
Upfront Costs of Starting a Franchise
Sometimes, you may be taking over a franchise from a previous manager. In this case, your startup costs will be fairly minimal. But if you’re starting a new restaurant location from scratch, you’ll face several significant costs, including:
- Rental space/commercial real estate
- Purchasing equipment and supplies
- Onboarding a team of employees
- Licensing and permits
Together with your franchising fee, these initial costs will represent a major investment. Make sure to look into what your franchisor expects while learning how to start a franchise restaurant.
Business Licenses and Permits
Both federal and local regulations require businesses to maintain a set of licenses and permits to operate. Permits are essential if your restaurant franchise serves alcohol, a common feature at many casual dining establishments.
You’ll have to pay to obtain and renew your liquor license and display the license prominently in your restaurant. Failing to do so can result in another cost entirely. If you don’t have or display a liquor license, you risk a fine, and the authorities can even force you to close your doors.
Franchising Royalties
Many franchising companies charge monthly royalties in addition to the initial franchising fee. Royalties are established by the franchisor and are either a flat monthly cost or a percentage of your monthly revenue.
While these royalties aren’t one of your requirements to start a franchise, you’ll still need to budget wisely to be ready once your doors are open. It’s critical to learn about these fees prior to signing your franchising agreement, to prepare a budget accordingly.
Labor Costs
Finally, you’ll have to consider the cost of labor. When you’re starting a franchise for the first time, you’ll need to assemble an entire team to keep your new place running efficiently. In addition to covering payroll, you’ll have to pay for things like training, uniforms, and payroll taxes.
Additionally, the process of hiring a whole team will be time-consuming. You’ll have to advertise the available positions and be part of the interviewing process. Conducting interviews can steal valuable time away from other revenue-generating activities that could support your business.
The Good News: Help Is Available
If these costs and fees sound intimidating, don’t worry. You may be able to receive assistance in the form of a loan or from the franchise company itself.
For instance, some franchisors offer discounts on franchise fees and royalties for women, minorities, and military veterans. Others offer promotional specials to attract first-time franchisees. These incentives can put business ownership within reach for many who couldn’t afford it otherwise.
Franchise owner-operators can also obtain funding in the form of a small business loan. Many lenders offer specialized packages that cater to franchisees. The U.S. Small Business Administration (SBA) has franchising loans with eligibility requirements less stringent than other types of loans.
The bottom line is simple: Opening a franchise is an investment, but it’s not an investment you’ll have to make by yourself. These resources can help make your dream a reality and put you on a secure path toward financial freedom.
Locate a Franchise in Your Area
To learn more about how to start a franchise, explore the resources on FranchiseOpportunities.com. When you’re ready, use the franchise locator tool to find opportunities in your area. An investment in a franchise today can pay off tomorrow and provide the momentum for a rewarding new career.