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How Much Does It Cost to Buy a Franchise?

How Much Does It Cost to Buy a Franchise?-1

With an estimated 1,300 franchise systems operating in Canada, there is no easy answer to this question.

There are some franchises, like CruiseOne, that can cost as little as a few thousand dollars to start, while others like Wyndham can cost tens of millions of dollars. The cost to open a franchise varies by the franchise system and location the franchise unit will be run from.

But according to franchising industry expert Michael H. Seid, the average initial investment for a single unit franchise typically falls between $100,000 and $300,000.

Why Does Franchise Cost Vary So Much?

Different franchises have different execution requirements. Since each franchise is unique in its business model, they all have different costs associated with their needs. The purchase and renovation of real estate property is often the most expensive cost in opening a franchise. Therefore, home-based franchise opportunities, such as CrusieOne, tend to be lower cost since they don’t have a real estate cost. Cost is further lessened when businesses don’t have specialized materials needed for operation.

Common Franchise Costs

There are some costs, however, that are common across franchises. The first of those costs is the franchise fee.

The franchise fee is like a cover charge for entry into the franchise system. This is the fee you pay the franchisor for doing all the legwork in developing the brand, saving you from many of the pitfalls that come with starting a business from the ground up. The franchise fee usually covers the right to use the franchisor’s system, including trademarks and proprietary operating systems, and services the franchisor provides to franchisees from helping to find a location to training materials. The franchise fee is usually due in full when the franchise agreement is signed.

Training is another common cost. Training materials are often covered by the franchise fee, but franchisees will usually have to cover their travel and lodging during the on-site training.

Other common costs associated with opening a franchise are similar to a non-franchise business opening. These costs include:

  • General office supplies and equipment
  • Industry-specific equipment
  • Leasehold improvements and construction, if real estate is needed
  • Signage and decor, if not a home-based franchise
  • Inventory
  • Professional fees (e.g. legal, licensing, accounting, etc.)
  • Grand opening advertising/marketing
  • Insurance
  • Taxes

Many franchisors will also specify a minimum liquid cash requirement. This is an amount of money the franchisor believes a franchisee should have in savings and be able to access quickly, if needed. The liquid cash estimate includes money for emergencies and setbacks, and it typically accounts for regular living expenses until the franchise unit begins turning a profit.
While these costs are common, they may not apply to all franchises. Please be sure to check the Franchise Disclosure Document (FDD) of a specific brand for details on its investment costs, and don’t be afraid to ask the franchisor any questions you may have. Also, be sure to go over any franchise agreements with a franchise lawyer before signing.

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