It’s not an uncommon dream to be your own boss. But if you’re exploring how to open a business or whether to invest in a franchise, one of the most important factors to consider is the money. So how much does it cost to open a franchise?
There isn’t one perfectly defined answer, or even a general ballpark, because the costs depend on a variety of factors, the most important of which are your industry and location.
Most franchises have general investment information right on their website to at least give you an idea of how much money you’ll need. Some require your net worth to be a certain figure, while others want you to have a certain amount of liquid capital.
For the Average Joe looking to shift directions toward franchising, however, you’ll likely require financing to cover the costs and eventually will have to leave your current full-time job – meaning your known source of income suddenly disappears.
With that knowledge comes a need for preparation: Not only for financing and repaying those bill, but for having enough money saved to maintain your living costs until you start generating revenue again.
Here’s a closer look at what the cost of opening a franchise might look like.
Invest in a Franchise: Franchise Fee
This is your payment to the franchisor for the rights to open one of their stores. This often ranges between $50,000 and $100,000 and upwards, but can be lower for very small companies and much larger for the giants of the industry. The cost is typically listed separately, but is usually included in the “total investment” number potential franchisees are given.
To invest in Jon Smith Subs franchise, we charge a modest $29,500 franchise fee.
Liquid Capital
These are simply assets that are readily convertible to cash, like stocks, bonds, or other savings. We require liquid capital of approximately $150,000.
Total Investment
This is how much you’re projected to need to open your new franchise unit. This number usually includes the projected cost of real estate, equipment, your franchise fee, and operating costs for the first three-plus months of business. We estimate investors will need between $250,000 and $400,000.
Royalties
If you’re trying to calculate your projected profit, you’ll need to be sure to discount any royalties. These are monthly payments made to your franchisor, and typically are a small percentage of your total sales. Our royalty rate is 6%.
Personal Savings
More often than not, franchisees quit their jobs to become business owners. But by doing so, as we mentioned above, you’re cutting off your income. It’s prudent to understand that your business isn’t going to start profiting on Day 1, and could take an extended period of time to start making a profit, let alone one that is equal to what you were previously making. Before taking the leap and storming into the office with your resignation letter, it’s important to pay off any debt, loans, and outstanding bills. Then, calculate your cost of living and budget enough savings to use for at least a year or more to be safe.
Interested in learning more about an investment in Jon Smith Subs? Contact us today to speak with a franchise consultant.
