The restoration industry is difficult to break through. It is exceptionally competitive, and there is little room for error. Only underestimating the cost of starting a restoration business is the biggest mistake business owners make. If someone is considering restoration franchise opportunities, research beforehand is a good idea. Most people only consider initial fees and equipment costs when starting a restoration business. On average, it can cost $55,000 to start a restoration business. One can start a restoration business anywhere from $12,000 to $160,000.
The most Common Expenses for Starting a Restoration Franchise Business are as follows.
Initial franchise fee
When buying a franchise, whether in the restoration industry or not, there is almost always an initial franchise fee, varying from thousands of dollars to six figures for big-name franchises. The initial loan fee to open a McDonald’s in the US is about $45,000. That may seem like a lot but know that McDonald’s franchises’ average annual gross revenue is around $150,000 annually. With profits like that, their initial franchise fee looks like a drop in the bucket. Regarding restoration businesses, franchise purchases are usually based on location, population, and of course, the restoration business they’re franchising.
Office or warehouse cost
Renting or leasing office space and storage facilities is the largest annual expense of restoration franchise opportunities. So, one should choose a location where rent is affordable. The space one needs in the office and where one stores the equipment depends on the space owned. A budget of about $15 per square foot for offices and about $5 per square foot for the warehouse is perfect. On average, one can expect to spend $1,400/month on offices and $3,500/month on warehouses. In the case of a one-year contract, the monthly rent may be discounted. Remember to add utilities, insurance, and taxes to the monthly rent.
Licenses, Certifications, and Training
As with most businesses, one must obtain proper licenses, certifications, and training before being legally permitted to operate or perform any particular service. As one might have guessed, buying a restoration franchise is no exception. On the business side, ensure all the necessary documents, such as tax identification number and DBA (Doing Business As). Additionally, before legally undertaking certain remediation work, one must be trained in remediation services such as water damage and mold removal.
Someone already in a franchise business may have licenses for certain services, such as water damage restoration. It will save some money on paperwork and training. For franchisees in other industries, please note that these licensing, certification, and training fees vary by industry, company, and state.
The maintenance cost of restoration franchise opportunities depends on the amount of equipment the business owns and the type of equipment. One should budget about $100 a month for vehicle maintenance and repairs. All equipment also requires maintenance. So, one should spend about $150 a month on equipment repair and maintenance.
Monthly license fee
In most industries, the franchisee pays the franchisor a monthly ongoing license fee when purchasing a franchise. It could be a fixed rate, say $500 per month, regardless of monthly sales, but it is much more likely in the form of a monthly percentage. Depending on the industry, this monthly royalty percentage is typically small (less than 15%) of the franchisee’s monthly sales. For example, in the restoration industry, franchise royalties typically range from about 3% to 10% of total monthly sales that fall under restoration and other services.
But make no mistake. One gets bang for the buck when it comes to restoration royalties. Franchisors use these monthly fees to support their franchisees in various ways. It includes comprehensive business plans, marketing strategies, and other optimizations for specific industries and geographies. Additionally, some franchisors only charge royalties on the income they collect, not their income. In other words, the business owner pays the franchisor only on receiving the payments.
It is important to consider whether exploiting restoration franchise opportunities is right. This article summarizes all the costs of starting a franchise business. These costs may be high at first but are rewarding at a later stage. When done right, franchise business owners can earn good money.