HOW MUCH UP-FRONT MONEY IS REQUIRED TO START A FRANCHISE?
If you’re looking for a retail location you’ll want to have 30-50% of the total cost available in cash for the purchase. An average retail location begins at approximately $80,000 and goes up from there. There are many options in the $150,000 to $250,000 range including clothing stores, restaurants, digital stores, office service stores, light manufacturing and equipment stores. For a large location or a stand-alone building, the average price can be over 1 million dollars.
There are many service franchises that start at $30,000 and go up to around $150,000. These types of businesses can be ideal for first time business owners or business owners that are looking to invest a smaller amount of capital. We encourage fiscal responsibility in managing cash flow and initial investment cost; therefore, service businesses can be an ideal option for many franchise owners. These types of franchises include business services, professional training services, construction related services, pet care services, cost reduction services, child development and senior care, just to name a few.”
WHEN WILL I ACHIEVE A RETURN ON MY INVESTMENT?
HOW MUCH CAN I EARN AS A FRANCHISEE?
HOW DO I FIND OUT HOW MUCH OTHER FRANCHISEES EARN?
HOW DO I OBTAIN FUNDING?
Retirement Plan Rollovers
The most common and widely used funding option currently is 401k and retirement plan rollovers. The reason why so many new franchisees choose this option is because they can take a salary from day one, eliminating any paycheck phobia.
You can reinvest a larger percentage of your earnings as pre-taxed dollars and the government encourages rollovers by not taxing the money when it is used in an investment like a business or a franchise.
Unsecured Lines of Credit
These are available to individuals that would like to leverage their entire investment. There is little money required down and an individual can borrow up to $150,000.
There are considerable fees that are tacked onto the amount borrowed and the interest rate is around 12%. This can be a great option for someone that does not want to use their cash, but wants to get started. If you take this approach, we encourage you to be very conservative with your initial purchase and choose a low cost franchise system.
SBA & Traditional Loans
In order to qualify for an SBA or traditional bank loan you must have a credit score equal to or above 700. The owners must have management experience in the same or similar field. The lender will require franchise documentation. They must verify the owner’s equity investment of 30%-50% up-front. They must also verify exactly what needs to be funded with the loan. You must be specific, very exact, and include a well thought out breakdown. The final requirement is a very detailed and believable monthly financial projection for years 1, 2 and 3.
HOW MUCH SHOULD I SPEND ON A FRANCHISE WITHOUT RISKING ALL OF MY INVESTMENT?
For those that are extra conservative, 50% is a good safe number to work from. It may take a little longer than expected to get everything up and running, so having that extra cushion for working capital is a responsible way to approach the business.
HOW MUCH SHOULD BE ALLOCATED FOR ONGOING COSTS (INCLUDING LIVING EXPENSES)?
HOW DOES THE FRANCHISOR MAKE MONEY?
Ask Your Question
WHAT IS THE DIFFERENCE BETWEEN A BIZ OPP AND FRANCHISE?
A business opportunity (or biz opp) is the sale or lease of any product, service, equipment, etc. that will allow the purchaser-licensee to begin a business. The licensor (or seller) of a business opportunity usually states that it will acquire or assist the buyer in finding a suitable location or provide the product to the purchaser-licensee. This is different from the sale of an independent business, in which there is no continued relationship required by the seller.
WHAT CAN A FRANCHISE DO FOR ME THAT I CAN’T DO FOR MYSELF?
Franchisors provide bulk purchasing power (much like wholesaling) which you wouldn’t have without the franchise system. Because all of the franchisees in a system contribute to the expense of creating the software, systems, tools, etc., the quality of those resources is superior to resources provided to non-franchised businesses. If one tried to recreate those distributables, the expense would be far more than what one had invested in the franchise fee and the quality would be sub-par.
ARE THERE ANY CURRENT TRENDS IN FRANCHISING?
WHAT TYPE OF SUPPORT IS INCLUDED?
Therefore, we believe that solid and lengthy training programs properly prepare a franchisee for success. There are so many facets to business and it takes more than a week to learn all of them. We encourage prospects to look for franchise systems that have a minimum of two weeks of initial training, a library of past trainings for on-the-job reference and a very strong ongoing coaching and support program. We also encourage franchisees to use the resources available to them because it will make a dramatic difference to your financial success.
Ask Your Question
Are you sick of the 9-5 grind and actively looking for alternatives? Start with the basics of going into business for yourself.
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Profits are Better Than Wages
In “Profits are Better Than Wages”, experienced franchise advisor, Seth Lederman answers the “how” and “why” of going into business for yourself.
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