For many franchise investors costs are a major hurdle when starting a business, and many want a simplified answer in dollar terms. However this is not as simple as every franchise company has different costs. The basic fees can be separated into the following categories:

Upfront Franchise Fee

All franchises will require an initial franchise fee. Depending on the type of franchise this can be as low as $10,000 (for small business franchise, mobile and internet franchises) and up to $1,500,000 (for larger well known fast food franchises). This fee incorporates business support from the franchiser, training for a new franchise investor and territorial management.

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Ongoing Royalty Fees

Ongoing royalties are paid to the franchiser on a regular basis (usually monthly). These royalties are a percentage of the gross profit made by the franchisee and cover the use of the brand and trademark. This is how franchisers make most of the profit.

Build Costs

Build costs are almost impossible to estimate in different markets for different franchise. Variables like site purchase or lease and building materials make it hard to estimate the entire cost for an investor.

However most franchisers will provide support for site selection as well as suitable build plans and estimates. A McDonalds or Subway franchise is different to a small business franchise or even a home based franchise where the building cost may be inexistent.

Franchise Legal Fees

As with any business a franchise will incur legal costs. Differing between lawyers and time spent, the legal costs will make up a portion of the upfront cost needed to start an initial franchise.

Inventory, Equipment and Supplies

This section includes the ongoing materials needed to run a business. Through franchising a lot of these costs can be kept lower than market price as the franchiser will purchase in large quantities and then pass the savings down (this can work in the opposite way though).

Certain requirements are different for all franchises and possible franchise investors should be aware of this.

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Running Capital

Capital is the available cash a franchise business has to fund its operation on a daily basis. For many investors this is the key to success. As many small business fail within the first few years, the working capital for a small business franchise should be sustainable to carry on business for a number of years.

A franchise can be a successfully run business for a small entrepreneur or investor. Although costs can seem daunting, a franchiser can always provide a clear and up-to-date analysis for possible franchise investors.

Simplified and clear outlines of the total cost of a franchise and ongoing fees will help an investor choose which franchise opportunity is a plausible business option for them.