Have you ever looked at the line-up of cars waiting in a Tim Horton’s drive-thru and thought, “Is this place just a license to print money?” I’ve often wondered about the cost of starting a franchise, and whether or not the initial capital investment and time involved would be worthwhile.
I’ve researched some of the top franchises in Canada and the results were quite surprising. Here is a list of popular franchises and how much they typically cost to open:
Starting a Franchise
1. McDonald’s – Serves more than 56 million customers a day with over 30,000 locations in 118 countries. More than 70 percent of McDonald’s restaurants are owned and operated by local business people. 20-40 employees are needed to run a franchised unit. 82 percent of franchisees own more than one unit. Absentee ownership is not allowed.
- Total Investment: $950,200-$1,800,000
- Initial Franchise Fee: $45,000
- Royalty Fee: 12.5%+
- Advertising Fee: N/A
- Term of Agreement: 20 years
- Renewal Fee: $45K
- Minimum Financial Requirements: New owner must pay 40 percent (cash) of total investment
2. Tim Horton’s – With more than 2,800 locations across Canada and 500 in the United States, Tim Horton’s is a national icon. The Canadian operation is about 95 percent franchise owned and operated. 25-30 employees are needed to run a franchised unit. 58 percent of all franchisees own more than one unit. Absentee ownership is not allowed.
- Total Investment: $409,200-$665,700
- Initial Franchise Fee: $35,000
- Royalty Fee: 2.5% to 4.5 %
- Advertising Fee: 4%
- Term of Agreement: 10 years
- Minimum Financial Requirements: New owner must pay $144k (cash) of total investment, plus have $50k (cash) in working capital available
3. Subway – Operating 33,538 restaurants in 92 countries, Subway is the world’s largest restaurant chain. 6-10 employees are needed to run a franchised unit. 65 percent of all franchisees own more than one unit. Absentee ownership is not allowed.
- Total Investment: $78,600-$238,300
- Initial Franchise Fee: $15,000
- Royalty Fee: 8%
- Advertising Fee: N/A
- Term of Agreement: 20 years
4. Domino’s Pizza – Over 8,600 stores in 55 countries, Domino’s is one of the world’s leaders in pizza delivery. 15-20 employees are needed to run a franchised unit. Absentee ownership is not allowed.
- Total Investment: $119,950-$461,700
- Initial Franchise Fee: $3,300
- Royalty Fee: 5.5%
- Advertising Fee: N/A
- Term of Agreement: 10 years
- Minimum Financial Requirements: $50k liquid assets, and must have successfully managed a store for at least one year
5. Booster Juice – With over 170 stores in just 7 years, Booster Juice is the fastest growing juice bar in Canada. 8-10 employees are needed to run a franchised unit. 10 percent of all franchisees own more than one unit, however they are required to buy multiple units/master licenses. Absentee ownership is allowed, but 95 percent of franchisees are owner/operators.
- Total Investment: $214,500-$244,500
- Initial Franchise Fee: $20,000
- Royalty Fee: 6%
- Advertising Fee: N/A
- Term of Agreement: 5-10 years
- Renewal Fee: $5K
- Minimum Financial Requirements: $350k Net Worth and $100k liquid assets
As you can see, most franchises have a very strict selection process for accepting new franchisees. That’s not surprising, considering that when starting a franchise with one of the top franchises in Canada they want to ensure you are committed to the keeping the integrity of their brand to the highest level.
What was surprising to me was how much cash was needed to fund the initial investment. I had a pretty good idea of how much franchise fees were, but the amount of liquid capital needed when starting a franchise is huge.
Related: Preparing Yourself Financially Before Starting A Business
Starting a Franchise – Best Value
From this list, I view Subway as the best value for someone looking at starting a franchise in the fast food sector. For a minimum of $78,000 plus the $15,000 franchise fee, you can have one of the most recognized restaurant brands in the world. They didn’t have any outrageous personal financial requirements, as you could access traditional methods of financing to fund the investment without having to pay a large portion out of your own pocket.
Personally, operating a restaurant franchise is not high on my wish list. The financial reward might be worth it in the end, but at the cost of the majority of your time. I would much rather let my dividend income work for me over time. Tim Horton’s may be a license to print money, but I’m not buying it.
Would you consider starting a franchise?
