How to Buy a Franchise Cheap: A Guide
Buying a franchise can cost anywhere from $10,000 to $100,000 dollars. This initial start-up cost excludes a lot of people from the game. So how do you become a franchisee with no resources to pool from?
That’s exactly what we’ll share with you in this guide. Continue reading to learn how you can buy a franchise cheap!
What Is a Franchise?
A franchise is a business in which a franchisee (you) owns and operates a business location for the franchisor (the corporation).
The International Franchise Association defines it in more detail as “a method of distributing products or services involving a franchisor.” This means the franchisor establishes the brand’s trademark and business system. And you, the franchisee, pay a royalty and an initial fee that allows you to do business under the name and system.
What Are the Costs of a Franchise?
As mentioned, the start-up costs of a franchise can range from ten grand to $100,000. These startup costs cover renting or buying a location, purchasing equipment, hiring employees, insurance, legal fees, and marketing.
In addition, a franchisee is responsible for monthly royalty fees. A royalty fee is paid from the franchisee to the franchisor(corporate) in exchange for access to trademarks, logos, recipes, systems, and more. The royalty fee is usually a percentage of monthly revenues or profits.
Starting a franchise is cheaper than a traditional small business but still has a lofty initial investment. Turn key business opportunity provides low start-up costs to do so.
For those who don’t have the capital, but want to become a franchisee, there are ways to get started. We’ll discuss some options below.
1. Franchisor Funding
Some franchise corporations are multi-billion-dollar companies. They realize not all franchisees have the capital to run a business. In some cases, the corporation helps you with upfront costs in the form of a loan.
2. Bank Loan
The pros of this type of funding are flexibility and availability. Usually, if you have good credit you can obtain a decent bank loan, especially if you are franchising from a business with a proven success story.
The drawback is that many of these loans have high-interest rates making them more expensive in the long run and risky in the case that your franchised location flops.
If your franchise business is denied by the bank, look for a government-backed Small Business Administration (SBA) loan.
3. Home Equity Loan
If you own a home, you can obtain a bank loan for the amount of real estate you have paid. If your home is worth $100,000 and you only have $10,000 left to pay, you can obtain a home equity loan of up to $90,000.
4. Rollovers for Business Startups (ROBS)
Personally withdrawing money from a retirement account results in fees. With a ROBS you can access your retirement savings prematurely without any fees if they are being used to start a new business.
Funding methods 1-4 provide options in which you’ll still maintain 100% equity of your franchised location. You can look to own the franchise with a partner who has funding readily available. The downside is you will be giving up some ownership to your partner.
Ready to Buy a Franchise Cheap?
There are five ways to buy a franchise cheap. Franchise opportunities are everywhere. Don’t let a lack of capital get in your way, some of the most profitable franchises were funded with lent capital.
For more business opportunities, continue reading on our site!