Do You Need a Million Dollars to Start a Franchise?

Posted by Tom Scarda, Certified Franchise Executive on Jan 12, 2021 8:51:39 AM

In franchise consultant, life decisions

The pandemic has hit many businesses hard. This year has been unlike anything we've seen, and the future is uncertain for many Americans. If you've been laid off during this trying time or are unsure if your job will be secure for much longer, franchising might be your best bet at obtaining an alternative source of income.

The International Franchise Association estimates that franchising's economic output will grow considerably in the coming year. Franchises are easier to operate than start-up businesses because franchises have systems to follow. It could be an excellent fit for many.

However, people are quite skeptical about business ownership. Perhaps the most prevalent concern is fear of the unknown. Starting any business is expensive and losing money is not fun. And, are there any franchising funding choices to help reduce the burden? 

This blog will answer this question while also clearing up a few misconceptions about this industry.

Is it Necessary to Sink a Ton of Cash Into Your Franchise in Order to Make It Successful? 

The short answer is no. One of the main issues that make people turn away from franchising is the perceived cost. However, the investment in a franchise can vary significantly. Many franchises are extraordinarily expensive and might even cost upwards of a million dollars. These franchises are usually the ones that have lots of overhead. But there are also many less expensive options that you can pick from, well under a $100,000 investment. The franchise unit's final cost depends on numerous factors such as the type of franchise you buy, the current state of the real estate market, and the kind of equipment and vehicles that may need to be purchased.

So, What is the Actual Cost of Franchising?

The price range varies greatly based on which business you choose to buy. Some of the largest franchises with a recognizable brand may cost 1 to 3 million or more. Concepts located in strip malls are $150,000 to $500,00, and home or office-based businesses can be $60,000 to $150,000. These are very general, rule of thumb, back of napkin estimates. You must verify all costs with the franchise company. 

If you have a good credit score and some liquid monies that you can use to pay for your franchise fee, there are many funding options available.

Franchise Funding Options Can Reduce the Upfront Cost of Your Investment. 

Most franchise owners finance their new business. There several ways to accomplish that:

  • You can use your retirement funds tax and penalty-free. Many new franchise owners use this option because it's using your own money with no interest rate
  • There are a variety of loans that you can choose from, such as a bank loan, SBA loans 
  • Some partner with friends or relatives

All of these options have their pros and cons. If you aren't sure which one to pick, you might want to consider getting in touch with a franchise funding company. The franchise company you're working with, or I can recommend finance companies that are familiar with the concept you're considering.

Final Verdict:

The chief reason for failure in business is being undercapitalized. My recommendation is not to invest more than half of your net worth. That gives a cushion in the event of a mistake or oversight. Your franchise investment will have a range, and the franchise company discloses that range before you buy the franchise. To understand which brand is the right fit for you, make a list of your skills then decide how much you're willing to invest.

A great Franchise consultant can help you narrow down the franchise options that make sense for you. They will ensure that you don't make any missteps when beginning your journey as a franchise owner. If you'd like to chat with me about this, please book a time to talk via my calendar. Here is the link:


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