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Fees, start-up costs can be significant for franchisees

Jasmina Meyer/Highlands Today

From left: Bob Huston and Greg Seltveit co-own this Batteries Plus franchise located in Sebring. "We went into it pretty open-minded," said Huston.

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By BILL ROGERS

Highlands Today

Published: September 6, 2009

SEBRING - Carolyn Miller of Sebring makes the approximately 140-mile round-trip to Brandon for one reason - to shop at the Jo-Ann Fabric and Craft Store.

"I love that store," Miller said. "I could spend the whole day there."

Miller, who bypasses smaller Jo-Ann stores in Winter Haven and Lakeland to get to the larger store in Brandon, especially likes the material fabrics for quilting, baby blankets and wedding supplies at the national retailer.

Miller, who said she likes to make things for her 11 grandchildren and five great-grandchildren, said she often hears women saying they wished there was a Jo-Ann store in Highlands County, which has at least three fabric stores.

If Jo-Ann ever does decide to open a store in Highlands it will be owned by the company. The Hudson, Ohio-based company doesn't handle franchises.

When asked about the criteria used for locating new stores, Lisa Greb, director of public relations for the company, said, "We don't share that with the public" for competitive reasons.

Greb did say the company typically opens 20 stores a year in the United States. There are more than 750 Jo-Ann stores in the country.

Although Jo-Ann doesn't have franchise stores, there are 900,000 franchise businesses in the United States, according to the International Franchise Association.

The association represents 1,300 franchise companies in this country, spokesperson Alisa Harrison said. Harrison noted franchises account for 21 million jobs in the United States and generate $2.3 trillion in economic activity.

The franchise fees and start-up costs generally range from $20,000 to $2 million, Harrison said.

"It's a great way to get into business," she said. "You really need to do your homework."

There are 90 different categories from automotive to pet care. Subway, Batteries Plus and Curves have franchises in Highlands.

Subway

Lew Carter and his family own six Subway restaurants in Highlands County. They have been a franchisee since 1985.

The initial fee was $12,000 then and it hasn't changed, Carter said. However, the build-out and equipment costs have increased dramatically.

Carter, the president of 3 Carters Subway Inc., said the cost of opening the first store was about $40,000.

It cost $150,000 to open the store in the Avon Park Wal-mart.

Subway franchisees are required to pay on a weekly basis an 8 percent royalty fee and a 4 1/2 percent fee that goes into a national advertising fund.

For those who are interested in becoming a franchisee, Carter said a person needs to ask, "is it something you want to do?"

He suggests contacting existing franchisees who can talk about the process and discuss sales.

A valuable source of information is a document called the franchise offering circular that explains the fees and offers other information. Carter said all national franchises have the document.

Carter said the beauty of franchising is that the company has a proven system.

"If you submit yourself to the authority of the franchise and play by their rules, you should be able to be profitable," he said.

Carter recalled that the president of Subway told franchisees one time that they "didn't get into it to make sandwiches."

Batteries Plus

Bob Huston and his partner, Greg Seltveit, opened the Batteries Plus in Sebring in October 2008.

Huston said the one-time franchise fee was about $38,000. That covered some training and spending three weeks in Milwaukee. Travel expenses, food and lodging were not included.

The company requires franchisees to pay a 4 percent royalty fee and 1 percent advertising fee each month. Additionally, 5 percent of store sales have to be used for advertising.

Huston and Seltveit had to shell out between $45,000 and $50,000 in inventory. They had to find a building and pay for equipment and fixtures as well as hire employees.

Huston said he and Seltveit were both semi-retired at the time they decided to go into retail. They had been in other businesses and "wanted to do something different."

"We went into it pretty open-minded," he said. "Batteries Plus is a growing franchise and had continuous growth over several years."

One thing Huston said he would do differently is choose a location that had more parking.

Curves

Kathie Lawens is a Curves franchisee and owns the two stores in Sebring. Curves is a women's gym that provides a total body workout in 30 minutes.

She said she paid a franchise fee of $20,000 in 2003-04 and got the name and eight pieces of equipment. She had to cover the rental space, staffing and scales.

Lawens said the fee would now be $45,000.

Other franchises

According to the McDonald's Web site, the total cost varies from restaurant to restaurant and the minimum amount for a down payment will vary. The company generally requires a minimum of $300,000 of non-borrowed personal resources to be considered for a franchise.

The estimated initial investment required for each Little Caesars Pizza franchise location ranges from approximately $197,050 to $559,500 for a standard carry-out location, its Web site said. Stores in the higher end of the range are typically free-standing buildings and not strip-center locations. The costs vary and are based on different factors.

Little Caesars requires an individual interested in opening one store to have a net worth of $150,000 with a minimum of $50,000 in liquid, unencumbered assets such as cash. Candidates must also be able to obtain financing to cover the total costs of opening a franchised location.

7-Eleven's one-time initial franchise fee is based on the store's gross profit, according to the company's Web site. The range of the fee is from $50,000 to $350,000.

If the store has gasoline there is a one-time initial gasoline fee based on the store's gasoline gallons for the previous 12 months. The fees range from $10,000 to $40,000.

FAST FACTS

The International Franchise Association represents 1,300 franchise companies in this country, spokesperson Alisa Harrison said. Harrison noted franchises account for 21 million jobs in the United States and generate $2.3 trillion in economic activity.

The franchise fees and start-up costs generally range from $20,000 to $2 million, Harrison said.

"It's a great way to get into business," she said. "You really need to do your homework."

Bill Rogers may be reached at 386-5825 or wrogers@highlandstoday.com

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