Cost to Franchise
Like any business expansion, franchising requires significant investments. These costs to document and structure the franchise system vary, but the cost to create the franchise system may be less than the cost to open an outlet yourself.
The cost to create a new franchise system varies quite a bit based on the size of the system, the number of states that the franchise will be offered in, and the complexity of the franchise system. Our professional fees for startup franchisors are usually quoted on a flat-fee basis, with full transparency upfront allowing you to budget appropriately. Franchising also requires business expenditures such as developing a training program (unless done in-house) and marketing for franchisees.
Often the cost to start franchising is less than the cost to open a new location yourself.
To franchise your business, you’ll need to hire a franchise lawyer experienced in working with franchisors. Creating a new franchise system requires legal expenditures to form the new franchising company, obtain a federally registered trademark, and document the franchise and register in specific states. For most start-up franchise systems, Larkin Hoffman provides flat-fee services to form the new franchising company, obtain a federally registered trademark, and prepare and register an FDD, Franchise Agreement, and ancillary contracts.
Registration States vs. Non-Registration States vs. Business Opportunity States
The FDD we prepare will allow you to offer and sell franchises in 24 states without state filing fees. To offer or sell franchises in the rest of the states, the FDD must typically be registered with the state (and a state registration fee paid), unless an exemption exists.
For a new franchise offering, the registration fee can vary between $250 to $750 per franchise registration state (the cost is about the same or less for business opportunity registration states, but there are exemptions available which can typically avoid having to register in the business opportunity registration states).
The franchise offering, and the FDD, must be updated annually under state and federal law. For annual renewals, our professional fees are usually charged hourly and the franchise registration states will charge a renewal fee of $100 to $450 per franchise registration state. If there is a material change to the franchise system, offering, or the franchisor during the year—even before the annual renewal is due, the franchise registration states will require updating and registering again in the state; the filing fees are between $50 to $250 per state for these amendment filings.
Most startup franchisors only offer or sell franchises in a few states initially, usually close to their home base and where they believe most prospects may be. Often these initial states may be a mix of non-registration states (so no state filing fee would be required) and perhaps a few registration states.
Creating a new franchise system also requires business expenditures to:
- systemize your franchise system by developing Operating Manuals and training programs for franchisees
- develop marketing materials for the sale of franchises
- employ a salesperson or team
- otherwise support your franchisees on an ongoing basis
Some franchisors are able to handle most or all of these tasks in-house, but others will hire business consultants or marketing agencies to assist with some tasks.
When you consider whether to franchise your business, compare the costs described above with the cost of opening another location for your business by yourself. Often, the cost for setting up the franchise system, and annually updating and renewing the franchise system, is less than opening your own outlets. Further, after you pay the initial costs to set up the franchise system, most of the remaining costs and risks of expansion are on the franchisees.
Since I started working with Larkin Hoffman as legal advisors and franchise advisors I found out how important is to have the best on your side to be able to grow strong.
Juan Sagastume, PresidentGreen Shine