How Much Should It Cost To Franchise Your Business: $10‚000‚ $30‚000 or $150‚000?
Answer: $30‚000 to $35‚000* (See‚ Detailed Note Below)
So‚ this question comes up often and‚ for good reason‚ is a critical starting point for many start-up / would be franchisors. However‚ far too often‚ the answer that is given to this question is vague and – in my opinion – followed by misinformation that is designed to either make this process seem much more complex than it really is or‚ on the other end of the spectrum‚ overlook necessary steps that must be followed in the franchising process. That is‚ many times start-up franchisors are “sold” unnecessary franchise development services that do not add value (i.e.‚ $150‚000) or services that are woefully inadequate and will only launch a franchise system that gets you in trouble or‚ simply a ticket‚ to much higher legal fees (i.e.‚ $10‚000).
Let me be a little more precise and share (in general without revealing any confidences or identities) a conversation I had with an extremely successful business owner (with 4 successful locations) interested in franchising. Naturally‚ he is interested in franchising his business and he contacted me after he received a “quote” from a franchise development company. The quote was for $140‚000.00 and involved the following:
- Business Evaluation and Expansion Recommendations – This service involved the consultants review of the business‚ evaluation of market trends and recommendations for expansion‚ i.e.‚ franchise or license. (By the way click here to read our guide about the differences between franchising and licensing). $40‚000 was the quoted cost for this service. That is‚ before getting started‚ the consultant wanted $40‚000 to evaluate the business and recommend whether or not franchising was right for them and whether or not licensing was an option.
MY TAKE ON THIS – Well‚ it is a waste of money. If you are a successful business owner with four successful locations‚ I can assure you that you understand your business and industry better than 99.9% of every person on this planet. Deciding whether or not franchising is right for you‚ requires some thought and information and not a $40‚000 consultant report. Franchising is all about organic expansion and thoughtful growth. To learn more about franchising and what it means to franchise your business‚ read “Is Franchising The Next Step for Your Business” and The Ultimate Guide to Franchising Your Business (they are designed to inform and‚ best of all‚ they may save you $40‚000).
- Franchise Development Services – As to the franchise development services‚ this would be franchisor was told that the cost was $100‚000. This cost included FDD development‚ operations manual and other unspecified consulting services. The consultant mentioned that they were not lawyers but that they would have their own lawyers prepare everything.
MY TAKE ON THIS – Both as a franchisor myself (I also manage a national franchise company) and franchise lawyer‚ I take issue with “development companies” selling attorney services. The issue is a business one and that is‚ if the “franchise lawyer” preparing your FDD works for your development company then he or she does not work directly for you and is not directly accountable to you. In fact once you sign up you will learn that the franchise lawyer who will be helping out will “disclaim” or tell you that they are there just to assist as to the “form” of your documents but not the “substance”. Basically if something is wrong‚ the lawyer will not be standing behind your FDD. With regard to the operations manual‚ assistance is great but‚ again‚ understand that no one better understands your business better than you. You need to prepare your operations manual and a good franchise lawyer can assist you with the structure and getting you in the right direction. Final note‚ $100‚000‚ sounds way to high.
Franchising is a natural progression in the expansion of your business. The franchise development process is critical and far too often shrouded in amorphous and unclear services and service options. On the other end of the spectrum the $15‚000 development program (something that I will discuss in a future article) is‚ more often than not‚ a ticket to a future disaster‚ or simply the entrance fee to much higher fees (for services that you don’t yet know you need) later on.
I believe that $30‚000 to $35‚000 is the answer. Now you need to evaluate whether or not that is the right fee for you. The answer depends on “value”. That is‚ what are valuable franchise development services that will assist in taking your business from local success to regional or national franchise. I believe that we have the answer to the value question and this answer is based no only on my experiences as a franchise lawyer but also as a franchisor. Learn more about our step-by-step franchise law and franchise development program.
Let me know what you think.
By Charles Internicola August 6, 2013
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