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Franchise Expenses 101: Key Terms & Costs | VaporFi Franchise

When it comes to calculating franchise startup costs, there is a great deal to consider. Although the franchisor provides all business systems and branding, these come at a cost, and that cost doesn’t cover the expense of getting the business going. You will have to spend a lot of money before you make money. It is essential to decide how much you are willing and able to invest.

typical expenses franchisees incur

Review the following key expenses you should consider before settling on a franchised business.

1. initial investment (start-up costs)

This is the all-inclusive estimated cost for beginning the business. It includes the franchise fee, inventory, cost of fixed assets, deposits, build-out costs, leasehold improvements, and the working capital needed to operate until you see profits. You can look at Item 7 in the franchisor’s franchise disclosure document (FDD), or speak to other franchisees, to get a more solid estimate and details regarding how long it takes for the business to turn a profit.

franchise fee:

This is the fee you pay for the “key” to the business model. You can expect to pay anywhere from $10,000 for a home-based or mobile franchise to $5 million for a hotel franchise. It varies depending on the brand and industry. The fee can also cover your training, franchisor support, marketing, and more. Some franchise fees only cover the cost of using the name and brand, so be mindful.

legal and accounting fees

You will require a qualified franchise attorney to review all documents before signing any agreements. You will also need an accounting professional who can help you make sense of the numbers. Your franchisor is likely to hand over information that will allow your qualified accountant to start setting up books and records, as well as help you determine the working capital required.

working capital:

This is daily cash amount that must be available for the business. You should have at least three months of working capital ready before starting the business. You can refer to Item 7 in the FDD for an estimated amount, but you can also conduct in-depth research with your accountant to come up with a more accurate estimate.

build-out costs

These costs can vary depending on the franchise. To get some insight into these costs, you will first have to find a location for the new business and get approval from the franchisor. Then you will need to reference Item 7 in the FDD to understand what build-out costs are covered and not covered. Often times, the franchisor will cover things like leasing or renting the space, furniture, fixtures, equipment, signage, civil and architectural drawings, zoning compliance, contractors, decor, security, insurance, and landscaping. However, you will usually be expected to secure professional services, such as a construction company, in order to get an actual estimate on your build-out costs.

So how much does it cost to open a franchise? You can contact Franchise Vape to learn more. Our team can assist you in figuring out the initial investment costs to open your own VaporFi franchise.