How much does it cost to franchise a business ? The cost to franchise a business ranges from kits costing less than $100 to high-priced consulting groups charging $100,000 and more for a basic package. Both extremes of this range are foolhardy when everything is considered from an objective, what do you really need and cost-benefit strategic viewpoints. The topic of franchise kits is covered on another page of this website. The topic of evaluating franchise consultants and franchise attorneys is also covered on another page.
The franchise budget discussed below is a realistic line-by-line analysis that will result in a professional program that covers strategic business and legal issues. The optional management training is thinking smart - a cost-effective way to learn how to sell franchises in house and operate what will be an entirely new business. It dispenses with the need to hire a six-figure person with franchise management expertise. Or use expensive franchise brokers who can also create serious legal risk that will come back to haunt the company. A realistic franchise budget is the best way to manage franchise development costs effectively and ensure the best use of time and resources.
With franchise litigation costing upwards of $200,000 to $300,000 in legal fees alone these days, the last thing your company needs is to pay hefty legal bills because things are not done properly or the wrong things were said during franchise sales. This is the first avenue of attack pursued by disgruntled franchise owners. Doing it right the first time saves having to pay the legal piper down the road.
Building a Solid Foundation for A Franchise Budget Cost To Franchise A Business
What Does It Cost To Franchise A Business?
FRANCHISE DEVELOPMENT BUDGET 2012 Recession-Fighting Special
STRATEGIC PLANNING, OPERATIONS MANUAL & TRAINING PROGRAM Months of critical franchise strategic planning, include helping develop a professional, customized franchise operations manual and training program that are fully integrated with the FDD (below). Strategic planning is the most-neglected area in most programs - even franchise attorneys don't do it. Not having MBA's or ever owning and operating a franchise before, their focus is just on the legal docs. They (and franchise consultants) may talk the talk, but have never, ever walked the walk.
FDD FRANCHISE DISCLOSURE DOCUMENT Also includes drafting the FDD Franchise Disclosure Document, a 23-chapter document with various exhibits including franchise agreement, audited financial statements, etc.
FRANCHISE REGISTRATION APPLICATION Also includes preparing and filing a franchise registration application with one franchise registration state (a major one is used in this example).
TOTAL FOR ABOVE $30,000 $30,000
ADD NEW ENTITY FORMATION COSTS Forming a new entity to offer and sell the franchises (Corporation or LLC) 500 1,000
ADD CPA COST OF AUDITED FINANCIALS FOR FDD Cost of CPA audited financials for FDD (assumes our advice is followed, or the cost will be much higher - as in $10,000-plus higher) 500 600
ADD REGISTRATION FILING FEE Registration application fee paid to a franchise registration state (California is used in this example) 675 675
TOTAL BUDGET TO ENTER FRANCHISING  $31,675 $32,275
Optional Management Training
Cost of optional, management training  $ 6,000 $ 6,000
It Takes A Lot More To Succeed In Franchising Besides an FDD, an Operations Manual, an Invoice and a Handshake Moving forward with a new franchise company is a different and challenging issue requiring specialized knowledge. As Mr. Franchise has been quoted in the media as saying, " it takes a lot more for a company to succeed in franchising besides an FDD, a franchise operations manual, an invoice and a handshake." That's not something you will ever hear from the consultants or franchise attorneys who prepare franchise documents and charge exorbitant rates. Their focus is on the invoice and handshake as they transition to the next client, leaving your company adrift in the uncertain seas of selling franchises and operating what is an entirely different business.
Without this specialized knowledge, the chances of survival (let alone success) are slim. Getting the required knowledge in how to effectively sell franchises and operate a franchise company boils down to three options: (1) trial and error - a hit or (most likely) miss approach that can be very expensive; (2) hire a six-figured salary person who has management experience and background in operating a franchise company and learn over time; or (3) get specialized training from someone like Mr. Franchise who provides "Cliff Notes" based on his 32-years of experience as a testifying franchise expert, former franchise owner of a very successful franchise, and instructor to large, medium and small franchise companies.
To address this critical need, optional, online Franchise Management Training is offered by Mr. Franchise in how to sell franchises and run the new franchise company. The management training is priced at an additional $6k if you take it with the $30k program. If you decide to pass on the training initially, then decide to take it down the road, it is separately priced - currently at $18k. At either pricing level, it's worth every penny, but it makes a lot of sense to save $12k (66%) and go with the complete $36k package.
Mr. Franchise's live, interactive online training workshops address and provide training on the following topic areas so your management team learns how to effectively sell franchises and operate the new franchise company:
• Training existing personnel in how to run a franchise company • Selling franchises • Developing an effective franchise application form • Developing a franchise FAQ • Using our proprietary 7-step franchise marketing process • Conducting Franchise Discovery Days • Avoiding red flags in franchise marketing • Implementing our proprietary franchise sales control system • Implementing our proprietary disclosure compliance program • Training new franchise owners - strategies and tactics • The critical franchise support function • Facilitating feedback from franchise owners • Strategies for reducing annual auditing costs • Avoiding legal pitfalls in franchising
 - does not include whatever amount is used to initially capitalize the new entity at start up, or post-development expenses such as franchise advertising and marketing costs. A franchise development program normally takes four to six months to complete and can be expedited even further on a "rush" basis. Review-registration time by governmental agencies depends on a variety of factors and will take further time to complete. The quote includes a non-food FDD containing a single unit franchise agreement and filing in one franchise registration state. A franchise program for a food-related franchise will be quoted on an individual basis. Using a defined franchise budget gets the cost to franchise a business to an acceptable, affordable level and ensures the most efficient use of resources and talent. Paying at hourly rates can increase the cost five-fold or more.
 - optional online management training cost if a client elects to take both packages initially. If only management training is desired, or it is selected at a later date, then the separate pricing is currently $18,000. Compared to flying blind and spending large amounts on inappropriate advertising and marketing, or getting embroiled in 6-figure lawsuits, the cost of learning the do-it-right approach and systems for delegating responsibilities, selling franchises and managing a franchise company is a true bargain. It also obviates the need to hire costly outside personnel to manage the franchise effort and use costly and legally risky franchise brokers.
This question was originally asked and answered on the AllExperts website. The actual line-by-line budget for franchising a business appears before this question and answer.
Franchise Attorney Franchise Expert MBA - Kevin B. Murphy - Mr. Franchise & Former Franchise Owner Ė 1/9/2009
Our company is planning to franchise and a franchise consultant tells us his company needs to draft a franchise operations manual for us, as well as something called a Franchise Disclosure Document. They've quoted a $50,000 fee to do this. Any recommendations or input on whether this is a reasonable charge? Anything we can do ourselves to reduce it? $50k is a lot of money for our company to spend. Thanks for your time.
Your question covers a number of topics, so Iíll go through them one by one.
FRANCHISE OPERATIONS MANUAL
The Table of Contents of your Franchise Operations Manual is disclosed in the FDD (Franchise Disclosure Document), so technically you need a Franchise Operations Manual to franchise. The rub comes in who is the best person to draft the Manual. Thereís some great information about this topic and writing a Franchise Operations Manual at:
Bewildered by the new business of franchising, with its legal requirements, franchise disclosure documents, operations manuals, training programs, etc., many companies delegate franchise manual drafting responsibility to a high-priced franchise consultant. But using someone to write your franchise operations manual who knows literally nothing about your business and is learning from scratch at your expense, never makes any sense when everything is considered objectively.
Iíve developed a three-step approach to writing your own franchise operations manual, a best practice approach based on 29 years of writing, editing and reviewing hundreds of franchise operations manuals. This approach produces truly customized, professional manuals and eliminates having to pay a franchise consultant $20,000 or more for this relatively simple task. The three-step approach is covered in the link provided above.
FRANCHISE DISCLOSURE DOCUMENT (FDD))
The legal threshold for selling franchises is preparing (and in some franchise registration states, registering) the Franchise Disclosure Document. The FDD used to be called a UFOC but there was a name change under the new FTC Franchise Rule that became effective in 2007 and the required format in all states starting July 1, 2008. Thereís some good articles about FDDís at:
COST TO FRANCHISE A BUSINESS
Although the franchise consultant has offered to draft your Franchise Disclosure Document, unless they are also licensed attorneys (which hardly any are) doing this is the unauthorized practice of law. Most franchise consulting groups that sink to this level include fine print in their contract that you need to hire your own franchise attorney to review everything they do. This doesnít get them beyond the unauthorized practice of law violation. It also means you pay the piper twice Ė the franchise consultants and your attorney.
Regarding the $50,000 fee they quoted, itís not out of the ballpark compared to what other consulting groups charge Ė but it is excessive. And does it, for example, include strategic franchise planning? And do they offer training in how to sell franchises and operate the new franchise company? You need a lot more than a franchise operations manual, an FDD, an invoice and a handshake to succeed in franchising Ė especially these days.
A reasonable benchmark for franchising a business is to budget about $30,000 for strategic franchise planning, assistance in planning and editing your franchise operations manual, as well as drafting the Franchise Disclosure Document (FDD). If you're smart and use an experienced franchise attorney with an MBA and franchise ownership experience, you wonít need to hire a separate franchise consultant for strategic planning and drafting your franchise operations manual. This will save you at least another $20,000 to $30,000, possibly more. See our detailed line-by-line Franchise Development Budget for 2012 above this article.
THE MOST CRITICAL ASPECT OF FRANCHISING A BUSINESS
Based on my almost three decades of experience in the franchise industry, working on over 500 franchise assignments, there's a critical post-documentation aspect that most new franchise companies fail to address. It is the training and hand-holding that should be given as new franchise companies enter the new business of franchising. Mistakes made early on (and there are many for the ill-prepared and untrained) can cost tens of thousands of dollars, undermine the entire franchise effort or haunt the company for decades to come.
Itís crucial to have a franchise expert train the new company and provide ongoing feedback in franchise best practices, like adopting the proper franchise organizational structure, franchise marketing techniques and media choices, interviewing prospective franchise buyers, selling and documenting franchise sales, effective franchise training and start-up, franchise support and implementing a franchise advisory council. Although you can expect to spend another $6,000 on this training if purchased in a bundled package, it's one of the best investments your new franchise company will ever make. One immediate return on this investment is not having to hire an outside franchise person and pay an annual six-figure salary to help run the new company. The overhead associated with hiring permanent franchise staff is substantial.
Kevin B. Murphy, B.S., M.B.A., J.D.
"Enlarge the place of thy tent, and stretch forth the curtains: spare not, lengthen thy cords and strengthen thy stakes" Isaiah 54:2
Copyright 2012, Franchise Foundations, a San Francisco professional law corporation. The information you obtain at this franchise website is not, nor is it intended to be, franchise legal advice. You should always consult a franchise attorney - franchise lawyer for individual advice regarding your own situation and franchise disclosure documents. Use experienced FranchiseLawyers and FranchiseAttorneys for advice with your franchise legal documents and needs. Use an experienced MBA Franchise Expert for help with franchise consulting issues.
Last Franchise Website Update: September 15, 2012
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