Exploring How Much Buying A Franchise Costs, Alongside Specific Fees & Finance Options
Starting any business requires a substantial financial investment. Buying a franchise is no exception — despite not starting from scratch, franchises still have to finance several expenses unique from developing a business from the ground up. For entrepreneurs looking to buy a franchise, understanding these expenses is a must.
We’re here to help. Read on to learn how much it costs to buy a franchise, the specific fees involved with jumpstarting the business, and the different methods franchisees can take to finance their endeavors.
- How Much Does it Cost to Buy A Franchise?
- What Costs are Involved in Buying a Franchise?
- What Financing Do You Need to Buy a Franchise?
- Finance Your Franchise With Comprehensive Options From CoolVu
How Much Does it Cost to Buy A Franchise?
In short, there is no set cost to buying a franchise. ADP estimates the cost of starting a franchise can be as low as $10,000 or as high as $5 million — quite a range.
This is because franchises come in all sorts of shapes and sizes. The costs associated with a fast-food franchise, for example, will differ greatly compared to the expenses due for a window film franchise. Additionally, franchises come with diverse expenses to get up and running, paying out to several different parties.
What Costs are Involved in Buying a Franchise?
Buying a franchise comes with a bevy of fluctuating associated costs. There’s no one big fee to pay — potential franchisees need to plan to finance several different expenses in order to build out their business. Here are a few of the most common.
Franchise Fees
Franchise fees are the upfront payments charged by franchisors that grant a contract to a franchisee to operate their business for a defined period of time. In turn, as the payment that allows a franchisee to operate under a franchisor’s brand, a franchise fee can also be thought of as a licensing fee.
The cost of franchise fees vary from franchise to franchise. Typically, fees range between $15,000 to $50,000 — but may expand higher or lower depending on the business. Altogether, these fees can be thought of as the first cost to buy a franchise,
Many brands, including CoolVu, offer financing initiatives for veterans, women, and minorities via the franchise fee. With CoolVu, Veterans pay $0 on the Initial Franchise Fee, while women, minorities, and first responders can leverage a 50% reduction of that fee.
Startup Costs
As with any new business, buying a franchise also comes with startup costs. Startup costs encompass all expenses needed to get a franchise location up and running. These costs may include:
- Real estate and property investments
- Furniture and decor packages
- Initial marketing costs
- POS software
- Supplies and equipment
- Insurance
- Additional employee training
As with franchise fees, startup costs differ based on the nature of a franchise. For example, franchises that don’t require brick and mortar location can avoid real estate, furniture, and decor costs entirely. Additionally, many startup costs are firmly up to the discretion of the franchisee based on how much they are willing to spend on the different aspects of their business.
Professional Fees
Even the most experienced entrepreneurs can’t open a business without help from other specialists. Professional fees refer to payments towards other professionals that help launch a franchise location. These may include architects and engineers to build a location, lawyers to assist with zoning permits, franchise contracts, and other legal concerns, accountants to look over financing, and more.
Royalty Fees
Franchise fees aren’t the only charge franchisees need to pay to their franchisors. Royalty fees are recurring fees, typically monthly, that are paid to the franchisors based on a percentage of franchise revenue. These fees fluctuate in cost based on a franchise’s revenue from month to month, but remain at a set percentage.
What Financing Do You Need to Buy a Franchise?
With so many fees, financing a franchise can be overwhelming for potential franchisees. Most entrepreneurs cannot afford the cost of buying a franchise out-of-pocket; in turn, the majority of new franchisees need to apply for a loan — alongside other means of funding. Here are a few ways to assemble funds.
Commercial Bank Loans
Bank loans are some of the most common loan options for franchise businesses. Banks and credit unions offer a wide variety of loans for all kinds of businesses, including franchises. Some banks even have financing programs curated for different types of franchisees, such as loans for first-time operators and programs built for specific franchises.
These loans typically have competitive interest rates and repayment turns; however, they also have firm pieces of criteria to qualify. Banks won’t offer loans to franchisees without excellent credit, strong pre-existing financing, and a comprehensive business plan.
Small Business Administration (SBA) Loans
Small Business Administration loans, often abbreviated to SBA loans, are loans granted by participating lenders (typically banks and credit unions) that are partially guaranteed by the U.S. Small Business Administration, or SBA. Because they’re backed by the federal government, SBA loans typically have even more favorable interest rates and repayment terms than commercial bank loans.
Two of the most common types of SBA loans are SBA 7(a) loans and SBA CDC/504 loans. SBA 7(a) loans can be used for a versatile range of purchases, while SBA CDC/504 loans are limited to large, fixed asset purchases up to $5 million (including existing buildings, new facilities, or long-term equipment).
Much like bank loans, SBA loans are competitive. To qualify, franchisees will need good credit and solid finances, alongside meeting the specific SBA requirements for each loan. In turn, the SBA will closely examine all aspects of your business.
Personal Assets
Outside of bank loans, entrepreneurs can also use personal assets to finance their franchise. Personal assets can include a wide array of personal funds, including savings accounts, retirement funds, and home equity. One example is a rollover as a business startup (ROBS), a method of using retirement savings to fund a business without penalties.
While a useful option for entrepreneurs looking for a way to fund their business outside of a bank loan, using personal assets for financing is inherently risky. Financing via personal assets may come with substantial fees, and a failed business can greatly jeopardize future financial security.
In-House Financing
Some franchisors, including CoolVu, over in-house financing options on select fees. Franchisors may offer financing directly, or work with preferred lenders to offer loans to franchisees. Whatever the method, in-house financing can be used for specific fees depending on the franchisor.
CoolVu offers in-house financing to all qualifying franchisees for the $19,900 CoolVu Initial Franchise Fee. In-house financing also provides the benefit of allowing franchisees to not pay the entirety of the franchise upfront. However, for franchisees that do pay the fee upfront, CoolVu offers a 25% reduction in price. This discount brings the Initial Franchise Fee down to $14,925.
Finance Your Franchise With Comprehensive Options From CoolVu
With so many expenses and the need for external financing, opening a franchise can be overwhelming for anyone. Entrepreneurs need to partner with an experienced franchisor to ensure a reliable return on investment.
With a team boasting over 25 years of experience in franchise executive management, CoolVu has helped dozens of franchisees finance their business. Offering flexible in-house financing and transparent expenses, our team is dedicated to your success. Contact us today and discover how we can help finance your franchise.
