A Step-By-Step Guide to Budgeting for Turning Your Business Into a Franchise
If you own a successful business, you may have considered franchising as a strategy for expansion. If you have, then one of the questions you would have asked yourself is, “What would it cost to franchise my business?”
That’s a challenging question. All businesses are different. But what we can do is give you an idea of the costs involved, and how they may stack up – as well as how to minimize them.
How much does it cost to franchise a business – step by step?
When enquiring about the cost to franchise a business, it’s likely that you’ll get a large range of responses. Anything from a few thousand dollars to several hundreds of thousands of dollars.
Those at the lower end of the spectrum are unlikely to include the continuing costs of being a franchisor, so can be misleading. Sure, you’ve franchised the business, but how do you maintain it as a successful franchise?
Let’s assume you are at the beginning of your franchising journey and take a look at the step-by-step cost of turning your business into a franchise.
Program planning
This step is essential. Without planning, you cannot hope to be successful. It’s crucial to understand the process, the steps you must take, and how this will translate into franchisor/franchisee relationships.
If you’re not experienced in planning to franchise, then we recommend you hire a franchise consultant who is. They will help you to complete a feasibility study, evaluation of what resources you require, the franchising method that will best suit your business, and who would make the best franchisee candidates to work with.
Cost: $10k to $25k
Franchise Disclosure Document development
It’s a legal requirement to present a Franchise Disclosure Document (FDD) to potential franchisees. You’ll need legal advice and expertise, and the cost will depend upon several factors, such as complexity, whether you are working with an experienced franchise consultant and the cost of your legal counsel.
Cost: $20k to $60k
Development of an operations manual
An operations manual is critical to a franchise business. It tells your franchisees how they should act, covering everything about your business. To set this up, you’ll need to:
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Review your existing manuals
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Compose an outline of all processes involved in running your business
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Write sections that are pertinent to your existing business and to a franchisee
Once more, the costs involved will depend upon the complexity of your business and how complete your current resources are.
Cost: $10k to $25k
Preparing financial statements
When you franchise your business, you are obliged to include audited financial statements – even if you are setting up a new business entity as the franchise company. These financial statements must also be included in your FDD.
Cost: $2k to $5k
Filing and registration fees
You’ll also incur filing fees such as an incorporation fee, fees to register your trademarks, and FDD registration fees. If you only plan to franchise in one or two states (certainly to begin with), these fees will be at the low end of the range shown.
Cost: $1k to $5k
Training programs/materials
You will need to train franchisees in your business model and processes. This is crucial to ensure consistency across all your franchised units. Instructors will need a training program that ensures this training is delivered consistently.
Cost: $10k to $25k
Marketing materials
The success of your franchised business also depends upon how well you market it. You’ll need to have a website dedicated to franchising, perhaps interactive presentations and videos, and other marketing tools.
Cost: $20k to $40k
Growth planning – sales and marketing plan
How will you grow the business under the franchise model? How will you reach out to prospects, and how will you encourage prospects to explore further with you? A franchise consultant can be invaluable here, too. They may have a book full of leads to help you expand more efficiently.
Cost: $5k to $20k
Year one advertising and sales
How much you spend on advertising and sales in the first year as a franchise business depends upon your growth plans. Faster growth costs more! A conservative ballpark figure per franchisee acquisition is around $10k. This covers costs pertaining to business elements such as:
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Franchise sales website
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Franchise brand positioning
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Franchise sales presentations
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Public relations and brand validation
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Advertising
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Joining franchise broker organizations and attending conferences
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Recruiting franchisees
Cost: $20k to $100k
Total cost to franchise my business
The above costs are ballpark figures. The actual costs cannot be fully established until you understand all the complexities of franchising your business. But this should give you some idea for budgeting purposes.
Total expenditure: $100k to $320
How much does it cost to franchise your business with the guidance of a franchise consultant?
It’s not cheap to hire a franchise consultant, but it is beneficial – and these benefits often mean the costs above are reduced (though we haven’t included consultancy fees).
As franchise consultants, we help companies negotiate the minefield of turning their businesses into franchise businesses. We can include program planning, help you find a franchise attorney (and negotiate preferential rates) and provide our expertise to help with operating and training manuals. We also help to ensure you select the best franchise model from the off, reducing the potential that you will need to go through costly rewrites of your FDD.
To learn how we can help you achieve your franchising goals, contact New Ground Consulting today.