Opening a franchise restaurant requires careful budgeting and planning. Here’s a breakdown of costs and funding options to help you get started.
Startup Costs
- Franchise Fee: This is the initial fee to buy into the franchise, often ranging from $10,000 to over $100,000, depending on the brand.
- Construction and Leasehold Improvements: Customizing the space to franchise standards can be quite a range in cost depending on the space that you select. There is also other construction related fees to account for such as architect and engineering costs, permits, and construction management fees. Make sure to speak to and get bids from several contractors when determining your construction budget.
- Furniture, Fixtures and Equipment: FF&E costs typically include kitchen equipment, furniture, POS, signage, and millwork that will be paid for during construction.
- Working Capital and Inventory: Lease deposits, grand opening promotion, insurance, professional fees, training and travel expenses, pre-opening payroll, licensing, and opening inventory are some of the “working capital” items paid for prior to opening.
Operating Costs
- Monthly expenses like payroll, rent, utilities, franchise royalties, and marketing should be factored into your projections to understand operating capital needs as your business ramps to profitability.
Funding Solutions
- SBA Loans: Known for low down payments and longer repayment terms, SBA loans are ideal for franchisees wanting to open or acquire a franchise restaurant. These typically are used for up to 90% of your financing request. The other 10%+ can come from you from a variety of sources.
- Franchisor Financing: Some franchisors offer in-house financing or preferred lender programs that simplify the funding process.
- Personal Savings and Brokerage: Your savings are a common source of your personal investment in the new franchise business. Stocks and bonds can also be sold as a source of down payment toward your new franchise.
- Investors and Gifts: Family and friends can be a great source for some of your down payment, extra liquidity/working capital, or alternative source of financing.
- Home Equity Line of Credit (HELOC): HELOC’s can serve as your down payment provided you have a secondary source of repayment such as a job that you will keep after you open your restaurant.
- Retirement rollovers: A retirement rollover, commonly referred to as a ROBS (Rollover for Business Startups), allows individuals to use funds from their eligible retirement accounts, such as a 401(k) or IRA, to invest in or purchase a franchise restaurant without incurring early withdrawal penalties or taxes. This can work well in conjunction with an SBA loan.
Conclusion
There are sometimes several options to fund a franchise. SBA loans are typically the most common due to many advantages. Other sources of capital can complement the SBA loan or in some cases be used as an alternative. By understanding these costs and selecting the right funding sources, you can set yourself up for success in the franchise restaurant industry.
Building a solid budget is key to franchise success—let’s work together to secure the right funding to support your vision. Contact me today for a personalized consultation and start your franchise journey with confidence.”