Finance

3 Expenses You Need to Know About When Joining a Franchise

If you are thinking about starting your own business, one great option would be to open up a franchise. When you open up a franchise, you will be able to leverage off of the name and success of the parent company. Additionally, you can receive help with marketing, site selection, training, and other services. However, there are a lot of costs that go along with it. There are three expenses in particular that you need to know about when joining a franchise.

Business Taxes

Owning a franchise, or any other kind of business comes with a wide variety of business taxes. Some of the most common business taxes that you will have to pay will include sales tax, payroll taxes, federal and state taxes, and even local taxes based on the service or product that you provide. Hiring a professional to manage these taxes for you could help to reduce the total burden.

Source: Understanding Business Annual Report & Franchise Tax Obligations

Royalty Fees

Another expense that you will have when you are opening a franchise is royalty fees. The royalty fees are monthly, quarterly, or annual fees that you will pay to the parent company on an ongoing basis. You will need to understand the different ways to pay your franchise royalty so your payment doesn’t go astray. Royalty fees can be based on a percentage of sales, a flat rate, or some combination of both. It is important that you understand how these are calculated and try to negotiate with the parent company. Most importantly, they need to be factored into your budget.

Source: Fixed vs. Percent: Understanding Franchise Royalty Fees

Initial Costs

When you are going to start a franchise, there are many different expenses that you will incur at the beginning. Some of these expenses can include an opening franchise fee, a fee associated with marketing and real estate site selection, and expenses that are needed to fund your working capital and inventory. These expenses typically are not recurring but can be very expensive. You need to carefully account for these expenses at the beginning.

Source: Business Franchise Section

There are many benefits that come with starting a franchise. When you open a franchise, you will be able to take advantage of the brand that the parent company has built and the services that they can provide. However, franchises do come with expenses that other businesses may not incur. There are three expenses that you need to consider when you are going to join and open a franchise.

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