If you’re exploring business ownership through franchising, it doesn’t take long before numbers start swirling around like a bowl of alphabet soup. There’s a franchise fee, start-up costs, working capital, royalties… and suddenly you’re wondering, “Wait, what exactly am I paying for and how much money do I need to get started?”

You’re not alone. In fact, one of my recent candidates, let’s call her Sarah, was struggling to make sense of it all. She was excited, motivated, and ready for her next chapter, but the terminology was making her second-guess whether franchising was as clear and structured as she hoped.

Honestly, this is one reason why the discovery process is so important. It’s not about selling you on a specific franchise. It’s an information-gathering process designed to help you gather all information you need to make an informed decision on if that franchise is a good fit for you, including information to determine if the investment requirements align with your budget and financial goals. 

So let’s break it down the same way I walked Sarah through it.

What the Franchise Fee Actually Covers

When people first start exploring franchising, many assume the franchise fee covers everything required to start the business. But the franchise fee is more like your ticket into the system and you’ll need additional funds beyond the franchise fee to get started.

So what does the franchise fee cover? Typically it’s covering:

• The rights to operate under the brand
• Your initial training and onboarding
• Access to the franchises proven systems, marketing, technology, tools, and ongoing support
• Your protected territory (if the brand offers one)
• The ability to leverage the franchisor’s expertise instead of reinventing the wheel

When Sarah and I reviewed her FDD together, she said, “So… this fee basically plugs me into the entire ecosystem?”

Exactly.

The franchise fee is a one-time cost, but it’s not the total investment. When you receive an FDD from a franchise, you’ll want to review Items 5-7 to get an itemized list of your initial startup costs and anticipated on-going costs and fees.  And don’t hesitate to ask the franchise which investments are required upon launch or if there are any investments that can be held off for a few months after launch.

Start-Up Costs: Everything It Takes to Physically Launch the Business

Start-up costs include all the items you need to actually open the doors (literally or figuratively).

This might include:

• Equipment
• Vehicles
• Supplies
• Initial inventory
• Software or systems setup
• Buildout (if applicable)
• Permits, licensing, insurance
• Marketing for your launch (typically a higher spend than your on-going marketing expenses) 
• Hiring and initial payroll
• Working capital: the funds you’ll need to keep the business running until it becomes profitable

These costs vary dramatically depending on the business model. A mobile service brand might be $75K–$150K, whereas a brick-and-mortar concept could be $300K+.  The number of employees you’ll need to start and the labor costs in your market will also impact the amount of money you’ll need to account for when estimating your initial startup costs.

When Sarah saw this list, it started to give her the clarity she needed and that’s when the light bulb went on.

She said, “Ohhh… so the franchise fee funds access to the franchise system, and the start-up fees are funding the startup and on-going operational costs until the business is self-sustaining.”

Bingo.

A key question to ask franchisors during the FDD review is “How many months of working capital does your startup cost estimate factor in and roughly when are you seeing other franchisees start to break even?”  They may not give you a specific break-even timeline as that could be interpreted as them making financial performance promises (which the FTC regulates and prevents them from doing) but they may be able to give you a short and long range of what’s common and typical for most of their franchisees.  You can also ask the franchisees themselves when performing validation calls.

Why Working Capital Matters More Than Most People Realize

During our conversations, Sarah kept asking, “How much should I set aside for working capital? The FDD gives a number, but what if it takes me a bit longer to ramp?”

A fair and smart question.

Working capital is one of the most underrated parts of the investment. Yes, the FDD provides a range, but your personal comfort level matters too. You want enough capital to:

• Cover operating expenses during ramp-up
• Ride out slower months or unexpected costs
• Avoid feeling pressured or stressed while building the business
• Make strategic decisions instead of reactive ones

Most working capital estimates don’t include paying a fixed salary for the owner, so if you’re planning to leave a W2 job when you start your business you’ll need to have enough funds to cover your living expenses until your business is profitable enough to fund your lifestyle.

Sarah decided she wanted more cushion than just the minimum, a decision I fully supported.

She told me, “I want to sleep at night knowing I’m covered, even if things take a little longer to get profitable.”

Sarah’s decision was both financially smart and emotionally smart. Starting a business is both an exciting and a slightly scary time.  I always support a plan that reduces fear and so you can stay focused on creating freedom.

By the end of our planning session, she chose to allocate additional funds above the franchisor's stated recommendations, building in true margin for error and a more generous working capital buffer. This gave her the confidence she needed to move forward without second-guessing her ability to weather the startup phase.

Why Clarity Makes All the Difference

After we walked through the numbers together, Sarah said something I hear all the time:

“I think I get it now, this is finally starting to make sense. Thank you for broking it down for me.”

This is why working with a consultant matters, not to influence which franchise you choose or influence if you move forward with franchising at all, but to make sure you’re making that decision with full understanding, clarity, and confidence.

Once Sarah understood:

• What the franchise fee gives her
• What the startup costs do and do not include
• And how much working capital she would need to help her feel secure

…she was able to move through the rest of the discovery process without feeling overwhelmed or scared. She felt empowered, informed, and in control… exactly how this journey should feel.

Final Thoughts: The Right Investment Is One You Understand

Whether you ultimately invest in a franchise or decide to keep exploring, clarity around the financial structure is essential. When you understand the difference between franchise fees and start-up costs, everything else becomes easier to evaluate… ROI, ramp-up, profitability, and long-term growth.

If you’re in the early stages of exploring franchise ownership and want support navigating these concepts with confidence, I’d love to help you get clear on the numbers and what they mean for your future.

Set up a call with me here and let’s explore whether business ownership through franchising aligns with your goals and lifestyle.