Buying a franchise: questions, costs, and next steps

Published Thursday 16 April 2026

Table of contents

• Benefits of becoming a franchisee
• Franchise reality check
• Franchise vs. starting your own business
• Understanding franchise types
• Financial requirements overview
• Understanding franchise documents
• How to buy a franchise
• Questions for you
• Questions for the franchisor
• Making your franchise decision
• FAQs on buying a franchise

Key takeaways

• Research franchise financial performance thoroughly by requesting actual revenue data from existing franchisees, as government analysis shows projected revenues are often more than twice the actual first-year earnings.
• Review both the Franchise Disclosure Document and Franchise Agreement with a lawyer and accountant before signing, since these legal contracts define your rights, obligations, and ongoing financial commitments.
• Prepare for total investment costs ranging from $130,000 to over $300,000, including initial franchise fees, startup expenses, and working capital to cover six to 12 months of operating costs.
• Evaluate your comfort level with franchise restrictions and ongoing royalty payments up to 7% of gross revenue, as franchises limit your decision-making flexibility compared to independent business ownership.

Benefits of becoming a franchisee

Buying a franchise gives you a head start by letting you use a business model that's already working. Instead of building everything from scratch, you gain immediate access to systems, branding, and support that can take years to develop independently.

The main benefits include:

• a proven business model: You're investing in a concept that has a track record of success, which can lower the risk compared to starting an independent business
• a recognizable brand name: Good franchises come with built-in brand awareness, which can help you attract customers from day one
• established operations: You'll get access to established supply chains, operating manuals, and marketing strategies, saving you time and effort

Franchise reality check

A franchise reality check helps you weigh the trade-offs before committing your money and time. Franchise ownership offers proven business systems, but it also comes with specific financial and operational challenges you need to understand upfront.

Key franchise risks include:

• high startup costs: Initial franchise fees, equipment purchases, and inventory investments add up quickly
• ongoing expenses: Monthly royalties (up to 7% of gross revenues for some franchises), marketing fees, and payroll begin immediately
• performance pressure: Sales targets create constant demands in typically low-margin, high-volume businesses
• limited autonomy: Strict operational guidelines and brand requirements restrict your decision-making flexibility

Not all franchises offer the same level of support. Some provide valuable advice, strong support, and proven business systems, while others may offer less guidance, so it's important to ask the right questions before you commit. A government report found many franchise owners were unaware of the Federal Trade Commission's (FTC's) guide designed to help them.

Franchise vs. starting your own business

Understand the key differences between buying a franchise and starting an independent business to confirm which path aligns with your goals.

What you get with a franchise

With a franchise, you get a proven model, brand recognition, and support systems. This can make financing easier to secure and provides a clear roadmap from day one.

What you get starting your own business

Starting your own business gives you complete control and flexibility. You build the brand, keep all the profits, and can operate without the restrictions or ongoing fees of a franchise.

Which option is right for you?

Your decision depends on your risk tolerance, available capital, and work style. If you value structure and support, a franchise may be a good fit. If you prioritize autonomy and creative freedom, starting your own business might be the better path.

Understanding franchise types

Before evaluating costs, understand the four main franchise models and which might suit your situation.

Single-unit franchise

This is the most common type, where you own and operate one franchise location.

Multi-unit franchise

This agreement allows you to own and operate more than one location, typically within a defined territory.

Area developer franchise

As an area developer, you agree to open a certain number of franchise units in a large territory over a specific period.

Master franchise

A master franchisee has the rights to a large territory and can sell franchises to other people within that region, acting like a mini-franchisor.

Financial requirements overview

Franchise costs can vary significantly depending on the brand and industry, with one franchise disclosure document showing the total investment necessary ranging from $130,625–$325,925. While every franchise is different, you can generally expect to cover three key financial areas.

Be prepared to discuss:

• the initial franchise fee: a one-time fee to get the rights to use the brand's name and business model
• startup costs: the total investment needed to open the doors, which can include real estate, equipment, inventory, and signage
• ongoing royalties: a percentage of your revenue that you'll pay to the franchisor regularly, often weekly or monthly

Understanding franchise documents

Franchise documents are legal contracts that define your rights, obligations, and financial commitments as a franchisee. Reviewing these documents carefully protects you from unexpected costs and restrictions.

The two main documents are:

• the Franchise Disclosure Document (FDD): This document provides detailed information about the franchisor, the franchise system, and the fees you'll have to pay. Franchisors are required by law to give you the FDD before you sign any contracts, but a U.S. Government Accountability Office report found many franchise owners were unaware of the FTC's guide on franchising.
• the Franchise Agreement: This is the legal contract between you and the franchisor. It outlines your rights and responsibilities as a franchisee. It's a good idea to have a lawyer review this document with you.

How to buy a franchise

Follow these steps to navigate the franchise buying process from research to opening day.

1. Research franchise opportunities
2. Evaluate your finances and secure funding
3. Contact franchisors and request the FDD
4. Review documents with a lawyer and accountant
5. Speak with current franchisees
6. Attend discovery day
7. Sign the franchise agreement
8. Complete training
9. Set up your location and launch

Questions for you

Before evaluating specific opportunities, assess whether you have the time, money, and mindset for this commitment.

Ask yourself these questions:

• Do you prefer detailed guidance or independent problem-solving?
• What is your comfort level with significant debt and staffing obligations?
• Does structured oversight match your working preferences?
• Can you fund startup costs plus six–12 months of operating expenses?

Questions for the franchisor

These questions help you evaluate whether the business is financially stable and operationally sound. A good franchisor welcomes your questions and provides clear, detailed answers.

How's the business doing?

The franchisor's financial health determines whether your investment has a solid foundation. Request comprehensive business performance data to evaluate stability and growth potential before committing.

Essential documents to review:

• Review current sales, revenue, and profit margins across all locations
• Examine new franchise openings, closures, and system-wide trends
• Assess realistic forecasts with clearly stated assumptions
• Verify management team experience and industry reputation

What's the outlook for new franchisees?

Franchisee earnings vary widely, and initial projections may not match reality. A U.S. Government Accountability Office analysis found that for a group of franchisees, projected revenues were often more than twice the amount of actual first-year revenue. Request performance data from existing franchisees to understand realistic earning potential and operational costs.

Critical performance questions:

• What percentage of franchisees are profitable after year one?
• What are typical revenue and profit ranges by location type?
• What does a complete budget look like, including royalties, marketing fees, and operating expenses?
• What are location-specific projections based on demographics and market size?

Some franchises may not have detailed data available. If that's the case, consider how much uncertainty you're comfortable with before making your decision.

How strong is your data?

A franchisor may show you market research and financial projections, but don't accept them at face value. Verify the data is reliable by asking:

• When was the research conducted?
• How many customers or stores were involved in the study?
• What assumptions underlie the projections?

If you're unsure about the data, ask your accountant to review it with you.

What are the main teething problems?

First-year franchise challenges typically include cash flow gaps and staffing issues, and can be severe. In one government investigation of a specific franchise, 16 out of 22 franchisees interviewed defaulted on their loans.

Making your franchise decision

Successful franchise ownership requires genuine commitment beyond perceived safety and demands significant time investment and brand enthusiasm.

Essential success factors:

• Product passion: Genuine belief in the franchise’s products or services
• Time commitment: Willingness to work extensive hours, especially during startup phase
• Brand alignment: Comfort representing and promoting the franchisor’s values and methods
• Long-term vision: Clear plan for growth, additional locations, or eventual exit strategy

Use all the information you gather to make an informed decision. Add these details to your business plan to weigh the opportunities and challenges. Get professional advice from a lawyer and an accountant before you commit.

Plan for what happens after you’re up and running. Will you buy another location, stay in your current one, or sell? Make sure your plan is financially sound.

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FAQs on buying a franchise

Here are answers to common questions about buying a franchise.

How much does it cost to buy a franchise?

Franchise costs vary widely depending on the brand and industry. Total investment can range from around $130,000 to over $300,000, including the initial franchise fee, startup costs, and working capital for the first several months of operation.

What's the difference between a franchise fee and royalty payments?

The franchise fee is a one-time upfront payment for the rights to use the brand and business model. Royalty payments are ongoing fees, typically a percentage of your gross revenue, that you pay regularly to the franchisor for continued support and brand access.

Do I need a lawyer to review franchise documents?

Yes, you should have a lawyer review both the Franchise Disclosure Document (FDD) and the Franchise Agreement before signing. These legal contracts contain important terms about your rights, obligations, and financial commitments that require professional review.

How long does it take to open a franchise?

The timeline varies by franchise, but generally expect six to 12 months from signing the agreement to opening day. This includes completing training, finding and preparing a location, hiring staff, and obtaining necessary permits and licenses.

Can I sell my franchise if it doesn't work out?

Most franchise agreements include provisions about selling or transferring your franchise, but the franchisor typically has approval rights over any buyer. Review these terms carefully in your franchise agreement, as they may include restrictions, fees, or requirements that affect your ability to exit the business.