Franchise cost revealed

So you want to buy a franchise? How much will you need to pay to own a major franchise or one that is not very well known? The cost of a franchise can range from the low thousands to way over a million dollars. Why is there such a range of prices and do you get more when you buy one franchise versus another? The answer to the second question is yes. You do get far more when you purchase a major franchise. The difference goes from the success rate of a major franchise to the amount of training and help you will get during the entire time you own the franchise. The price range is a factor of what the market will bear and the popularity of the franchise. A major name franchise will cost more than one most people have never heard of. Another factor, which contributes to the cost, is the name recognition and the type of franchise. If the franchise is home based, the cost will be at the low end of the range.

How to get a handle on potential cost

There are many ways to find out the cost of franchises. You can attend a show and tell meeting put on by a franchise seller. You can read the local paper and business papers like the WSJ. You can contact business brokers and see what businesses they have listed and at what price range. A great new source for getting information is the Internet. A buyer can use any good search engine to find out just about anything you want to know about any franchise.

Another way to get information is to speak with owners of the franchise you are interested in owning. Talk with more than one, and you will begin to get a picture of what that franchise needs in the way of capital. At the same time, it is a good time to ask if they would do it again and do the like the business. What are their pet peeves and what do they like about the franchise people.

If you are lucky, you can get the unvarnished truth about that specific franchise and not from a seller of the franchise, but from an owner. The owner’s story will give you a better feel for the business than you will get from the franchise reps.

A reputable business broker can be extremely helpful in your initial inquiry since they help people buy and sell all of the time. They are sales people, but good ones are also very straightforward and will answer questions with solid experienced answers. This is what you need and not the hype you will get from sellers. By checking various sources, the buyer will begin to form a very accurate picture of what that franchise is all about. If you like what you see, pursue it and if you don’t, you can just walk away from this idea with a minimum cost to your finances.

Real cost and fluff cost

Any franchise has a real cost and then they have the fluff cost. Added together, the buyer is presented with the total cost. Major franchises can get just about what they want from franchise buyers as they have a record of new owner success. They also provide extensive training and advice on an ongoing basis.

This along with the great name recognition may account for their ability to help a new owner make it with a new business. They certainly defy the stats that new businesses have as to failure rate. Another key with them is they will turn down buyers who are trying to make it but are under capitalized. In the scheme of things they may be doing these buyers with a dream but little money a favor.

The fluff cost is the money in the total that really is pure profit and really does not buy anything. Many low cost franchises have a high percentage of fluff cost. This is due to them spending little on the buyer after the purchase. They will probably supply a CD and a notebook with how to work the franchise, but they do not have to spend a lot more on further training. In many cases they are selling an idea at a very high price.

A word of caution is to check out any low cost franchise very carefully. Contact other buyers of the franchise and if the seller is reluctant to introduce you to others, this is a red flag. Solid references are the norm when buying a good franchise.

Does the franchise have a source for financing

Financing a franchise is normal for many franchise buyers. They have a portion of the capital needed, but they will have to get help in raising the rest of the asking price. Most well run franchise companies have very strict criteria that buyers must meet before they will enter into serious discussions about a purchase. Part of this profile for the buyer is the capital they have available and can they get more if it is needed. The fact that the seller has criteria in place is another sign that they are looking for winners and not just someone they can make a buck off selling them a franchise. Sincerity by the seller in looking out for your future welfare is not a negative at all. They are well aware of what it takes to be successful and they have the experience to recognize it in a new buyer. If they do not see this potential they will probably pass on selling to the buyer.

All of these elements go into the cost of a franchise. There are two schools of thought among franchise sellers. Here is the business, buy it and run it. Here is the business, buy it and we will help you to learn to run it correctly so that it adds to our successful franchises. The latter is the preferable franchise to deal with.

Conclusions

As you can see there are many ways to find out about the cost of buying a franchise. Once you have the total cost down, make sure you understand how this total was arrived at and what you get in return. Make sure you understand the upfront cost and the ongoing cost that come up every year. Ask lots of questions and get every thing in writing so you can study it on your own. Do not make any assumptions that have not been verified. If a policy is explained that is mandatory, walk away if you feel you cannot live with it after the sale. This policy will grate against you over time and become a constant irritant. Running a business is difficult enough without having a constant source of aggravation.

Another given that can make a difference to the new owner, is decide early if you can live with the demands of the franchise you are considering buying. If you can see parts of it that you will not like doing, then be careful as once you are the owner, there may be no other choice for you. Know yourself and know the business is the answer to all of the questions that arise when buying a business.