The estimated cost to franchise your business ranges from $18,500 to $84,500. Below we provide a detailed break down of the costs involved in franchising a business.
Costs to Franchise Your Business
The cost to franchise your business, generally, will range from $18,500 to $84,500. Actual costs that you incur will depend on the franchise team that you are working with, the industry that you are in, and the level of support that you need.
Below is breakdown of the estimated costs at each stage of the franchise development process including, FDD development, franchise operations manual development, formation of your new franchise company, preparation of financial statements, and franchise registration.
- FDD Legal Fee Development - Estimated Cost $15,000 to $45,000.
Your FDD is a legal document that will serve as the entire legal underpinnings for your new franchise system and includes all of the legal agreements and documents, including your franchise agreement, between you and your franchisees. As a legal document your FDD must be prepared by an experienced franchise lawyer and during the development process, your legal team should also be making recommendations and giving advice about development structures (such as if you will be selling individual unit franchise opportunities, multi-unit development agreements, or both) and ensuring, overall, that your franchise offering is competitively positioned within the franchise marketplace, including the development of Item 19 financial performance representations and other key development factors. Legal development should also include trademark filings, and establishing the corporate entities for your franchise company. - Operations Manual Development - Estimated Cost $0 to $30,000.
Your Operations Manual is the confidential manual that you will provide franchisees to guide and instruct them on developing and operating the franchised business. Although the operations manual is not disclosed as a part of the FDD (i.e., since its a confidential document you only give it to franchisees after they sign a franchise agreement) your FDD will include its table of contents and should be completed during the franchise development process. Many times start-up franchisors prepare their own operations manual if they have well developed systems with the idea that the manual will be supplemented and improved over time, and other times start-up franchisors hire development professionals who will develop the operations manual for them. If you are working with an outside professional the cost estimates vary depending on the level of service ranging from assistance for a do it your self operations manual to complete on-site visits and development. - Financial Statement Preparation - Estimated Cost $2,500 to $5,000.
As a part of the franchise development process you will (or should) be establishing a new corporate entity, i.e., XYZ Franchising, LLC to serve as the franchisor. It is this new legal entity that will be issuing the FDD and selling franchises and under the franchise rules for many franchise registration states, your FDD will be required to include audited financial statements. Even though your corporate entity may be brand new and have little to no activity, you'll still need audited financial statements which means you will have to pay a licensed CPA to audit and certify the financial statements included in your FDD. - Filing and Registration Fees - Estimated Cost $1,000 to $4,500.
As you franchise your business you will incur filing fees that are most typically comprised of (a) incorporation fee (typically around $300, depending on the state) paid to the state that you elect to establish your new franchising corporate entity in; (b) USPTO filing fees (typically around $250 per trademark, per class) for the registration of your primary trademarks - assuming that your marks are not already registered; and (c) FDD registration fees (typically $250 to $750 per state, depending on the state) paid to the franchise registration states when registering your FDD within the state. Most start-up franchisors only initially register their FDD in 2 to 4 franchise registration states and, naturally, this estimate will depend on the number of trademark registrations and FDD filings.
To learn more about how to franchise your business, and the franchise sales marketing channels visit our Ultimate Guide to Franchising Your Business.
Costs for First Year of Franchise Sales
Although not technically a cost to franchise your business, every new franchisor should be considering a budget for franchise sales. Franchising is scalable and building up franchise sales is a process that occurs over years. To start, consider a franchise sales budget within your first year that is focused on building the foundation for your franchise sales efforts. Budgeted expenses should include building a sales website, developing website copy, PR, and presentations that tell the story of your brand and what makes you different. We also recommend building broker relationships and joining broker organizations. The estimated year 1 costs for a reasonable franchise sales strategy should range from $22,500 to $75,500. Of course these estimates will vary depending on how many franchises you plan to sell.
Assuming that you are in a favorable industry that is not oversaturated and assuming that you have a realistic franchise sales goal of 5 new franchise sales (i.e., not sales to your existing organic contacts), you should consider the following aggregate costs over the initial 12 months:
- Franchise Sales Website - Estimated Cost $2,500 to $15,000.
At the most basic level you will need to develop a franchise sales webpage and, possibly, a franchise sales website. Just adding a standard webpage with a contact form is not enough and will cost you deals. You'll need to invest in a webpage and, eventually, a website that educates and informs prospective franchisees about your franchise, why you'r different and how you franchise can improve their lives. - Franchise Brand Positioning - Estimated Cost $0 to $2,500.
As you check out franchise sales websites you may find that they all sound the same - "be in business for yourself, not by yourself" and "we provide training..." - so it's important to spend some time now to evaluate what your offering and get down into writing and, eventually, web copy, the unique selling points of your franchise offering and why your different. You could do this yourself (many times you'll know better than anyone else) or hire an outside team. - Franchise Sales Presentations - Estimated Cost $0 to $3,000.
Consistent with the development of your website and franchise brand positioning, you'll need to develop sales materials and presentations that tell the transformation story of your brand and educate your prospective franchisees. You can do this yourself or with an outside team. - Public Relations and Brand Validation - Estimated Cost $15,000 to $25,000.
As a start-up franchisor since you wont have a track record of successful franchisees, you'll need to build up third-party validation and there's no better way than through a franchise PR agency that gets your brand talked about and third-party stories and articles. - Advertising - Estimated Cost $0 to $20,000.
Paid advertising takes many forms including Google pay-per-click ads and social media sponsored posts and ads. - Joining Franchise Broker Organizations and Attending Conferences - Estimated Cost $5,000 to $10,000.
Along the way you should plan on attending an IFA franchise conference to gain more industry insights into franchising and also join a lower cost broker organization to start networking with brokers.
Be Strategic!
When it comes to franchising your business remember that you are entering a new industry and franchise success should be viewed from a mindset of implementing a 1, 2, 3, 4 and even 5 year plan. Who you align with and trust to franchise your business will be critical. Work with a legal team that is dedicated to franchising and who can provide you with additional resources, insights, and relationships that will help you grow.
