Startup Costs to Consider When Buying a Franchise Before you sign a contract, make sure you understand the financial obligations and startup costs of purchasing a franchise.

You have done your homework and have decided that buying a franchise is a great path to business ownership. You love the idea of being your own boss and are excited to think about the independence that can offer. Now you must select the franchise that is the best fit for you. And while there is a lot to consider when deciding to purchase a franchise, one major consideration is the financial obligation you are undertaking along with the personal financial requirements. It is important to evaluate all financial aspects and make sure you have selected the best franchise option for you.

Kumon North America's Vice President of Center Network Development John Collins says, "I encourage potential franchisees to thoroughly research companies they might want to partner with – not only to gather information, but also to get a feel for company culture. At Kumon, our owner-operators are valued members of the team. When they win, we win. That is why Kumon offers generous financial incentives and ongoing support for all franchisees."

Startup Costs

When researching franchises, pay special attention to the various startup costs, which will be detailed in the franchise disclosure document (FDD). Startup costs can vary widely, depending on the industry. Common startup costs include real estate, property improvements, supplies, equipment, furniture and training. Franchisors like Kumon offer generous incentives to help defray some of these expenses. Kumon provides free primary signage, call center equipment, furniture and fixtures for all new franchisees. Kumon also reimburses franchisees for 50 percent of rent costs for the first 12 months and paint, windows and carpet. Continuous ongoing training and support are included. Kumon offers additional incentives to U.S. veterans who wish to become owner-operators.

Entrepreneur magazine has ranked Kumon as the No. 1 Franchise for Less than $100,000 for the past two years. "While there are certain necessary startup costs when opening a franchise, at Kumon we work hard to keep costs reasonable," says Collins. "Kumon strives to impact the global community and local neighborhoods through education, and our owner-operators are a crucial part of our mission. We want to ensure that they have a successful start. That is why we provide signage, center furniture and reimbursement for some costs. We are proud to partner with Kumon Instructors in their dream of business ownership."

Financial Requirements

Every company has its own specific financial requirements for prospective franchisees. They consider things like liquidity and net worth. Franchisors will disclose the minimum and maximum amounts required for you to be considered as a potential franchisee. It is important to identify franchises for which you qualify financially before moving forward.

Franchise Fee

Companies charge an initial franchise fee that gives you permission to operate their business. According to Franchise Business Review, on average these fees range from $25,000 to $50,000. Kumon, an award-winning franchise, has ranked No. 1 for education franchises on the Franchise 500® list for 21 consecutive years, yet the franchise fee is only $2,000. Some others, however, can run as high as $1 million. The franchise fee can be found in a company's FDD.

Financing Options

Startup costs range from just under $67,000 to $145,640 at Kumon, but there are financing options for every price point. You can consider crowdfunding or borrowing from a friend or family member. There are traditional commercial bank loans, or the franchisor might have lenders that they partner with to help potential franchisees. The Small Business Administration also may have funds available to help with financing.

While it is important to thoughtfully consider the initial startup costs, you must also evaluate the recurring fees and expenses. It is important to do your research, thoroughly read a company's FDD and reach out with any questions. A good franchisor will appreciate your diligence and work to answer your questions and address any concerns.

The financial aspects of buying a franchise require much thought and consideration. With research and honest reflection, you will find the ideal franchising partner.

To learn if the Kumon Franchise opportunity is right for you, visit kumonfranchise.com.