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How Much Does It Cost to Buy a Franchise?

Jack 8/12/24 5:30 PM

Franchise Cost QSR Franchise

5:59

Are you interested in learning the answer to, “How much does it cost to buy a franchise?”

At Jack in the Box, this is one of the most common questions we receive from first-time franchisees and even multi-unit investors.

In this article, we’ll go over the numbers you need be aware of when determining how much any franchise opportunity costs.

Lookup the Estimated Initial Investment

One of the quickest ways to determine how much any franchise costs is to lookup the estimated initial investment under item 7 of their franchise disclosure document.

The franchise disclosure document or FDD is a legal document the franchisor is required to provide to prospective franchisees within 14 calendar days before any agreement is signed.

Item 7 of the FDD contains an estimate of the funds needed for the initial purchase and working capital needs. It also shows the payment method, when it’s due, and to whom it is paid.

The estimated initial investment is typically presented in a low-to-high range. For example, the estimated initial investment for Jack in the Box is $1,810,600 to $4,207,500.

This number includes a wide range of items like initial franchise fees, real estate costs, supplies & equipment, furniture & fixtures, insurance, training, advertising, and working capital.

Understanding Your Initial Franchise Fee

Under Item 5 of the FDD, you’ll find information on the franchisor’s initial fees. The franchise fee is essentially a license for you to own and operate a franchise business.

This is the cost of entry for access to benefits like the franchisor’s brand, existing customer base, business systems, real estate support, and ongoing training.

At Jack in the Box, our initial franchise fee is $50,000 for each traditional franchised restaurant plus any tax or other fees due to the collection of your payment.

This initial franchise fee is due when you sign your franchise agreement which is typically a 20-year contract that allows you to operate as a franchisee.

If you sign a multi-unit development agreement with Jack in the Box, we grant you the right to construct an agreed-upon number of restaurants in a specified geographic area.

If you’re a new franchisee to our system, you must pay us a non-refundable development fee when you sign your multi-unit development agreement.

The fee is calculated as follows:

$50,000 for the first new restaurant.
$10,000 deposit for each additional new restaurant.

Both payments are non-refundable, and the remainder of your franchise fee ($40,000 per additional new restaurant) is due when you sign your franchise agreement, which is typically within 90 days of opening for each of your locations.

How to Finance Your Franchise Costs

So now that you have an idea of how much a franchise costs from the estimated initial investment, you’re probably wondering if you need to have all of that money in cash.

The quick answer is no. Most franchisees will use some form of financing to fund the costs of getting your new franchise business up and running.

The most popular ways to finance your franchise are typically one of the following methods:

Franchisor Financing: Some brands will offer special financing options designed to meet the financial requirements of their brand.
SBA Loans: Small business loans are partially guaranteed by the government through the Small Business Administration (SBA) to remove some of the risk for the financial institution who issues the loan.
Commercial Bank Loans: Most banks will require you to have a good credit rating in order to qualify for a commercial loan. You may also be asked to prepare a detailed business plan.
401k Rollovers: Funding your franchise with money from your previous or existing employer’s 401(k) plan is another option to consider.
Business Partners: Working with one or more business partners is another common way to finance your franchise because it allows you to pool your money together.
Stocks & Bonds: Like the 401(k) rollover we mentioned earlier, you can also use any stocks and bonds you own to create liquidity for your franchise.
Friends & Family: Borrowing money from friends and family can be a tricky subject, but it can also be a great source of financing from people who believe in you.

Please note each financing option contains its own risks and uncertainties and it’s best to consult a financial advisor to determine which option is best for you.

Don’t Forget About Ongoing Royalties

Once your franchise business is up and running, you’ll also be responsible for paying ongoing royalty fees to the franchisor.

Paying your initial franchise fee and ongoing royalties grants you access to a wide variety of assets and services that will help you run your business.

For example, you’ll be allowed to use the brand name, systems, logo, and store design. Plus, you’ll receive training and support before and after your store is operational.

At Jack in the Box, our ongoing royalties include a 5% royalty of gross sales and 5% marketing fee of gross sales. Both of these royalty fees are paid monthly.