July 18, 2022 | Last Updated on: November 28, 2023
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With rising interest rates and a potential recession on the horizon, people are turning to more affordable alternatives when eating out, including fast food restaurants. Whether you purchase an existing franchise location or start a new location, a franchise is a way to get in on a piece of the increased revenue without starting a business from scratch.
Subway is generally cited as one of the cheapest franchises to start, making it an appealing option for potential entrepreneurs. The initial investment required by the franchisor is estimated to be between $150,000 and $500,000, depending on the location. Founded in 1965 by Fred DeLuca and Peter Buck, its long history proves its staying power and solid business model.
Subway currently has locations throughout the United States (from Connecticut to California) and around the world. Despite Subway’s worldwide locations, there are still franchise opportunities available for eager entrepreneurs.
To start a Subway franchise, you’ll need to apply to become a franchisee. The application and approval process usually takes three to four months to complete. New locations will need to be approved by Subway to ensure that the new site is not too close to an existing location. Subway will help with site selection if you don’t have a preexisting property in mind.
Subway also has qualifications for the Subway franchise owners. You’ll need to have a good credit score and at least $40,000 of cash on hand. You’ll also need to find funding for the total investment of several hundred thousand of startup Subway franchise costs. A franchisee must have a net worth of at least $80,000 to be approved.
During the application, some regions will have third-party agents (or development agents) involved to facilitate the transactions. This can add additional time to the process, and it also gives the potential franchisee a neutral third-party to discuss the franchise agreement.Â
Once your application is approved, you’ll sign a franchise agreement and pay the initial franchise fee.
From there, Subway will provide a training program on how to run a successful business. The parent company will also provide marketing support and standardized products, along with almost everything you need to succeed (all for a fee).
The initial investment to start a Subway franchise can range from $200,000 to $400,000. This includes the restaurant franchise fee, which is typically around $15,000 (significantly lower than McDonald’s $45,000 franchise fee). It also takes into account the cost of leasing or purchasing commercial space, outfitting it with the necessary equipment, and stocking it with food and supplies. The final store design will also play a significant role in determining the startup cost, and a non-traditional location may require a substantially larger investment.Â
Along with Subway’s initial cash on hand requirement, you’ll need to have enough working capital on hand to cover the day-to-day costs of running your business until it becomes profitable. You may also want to factor in the cost of a grand opening for your new quick service restaurant.
If you don’t have the cash on hand to cover the full cost of starting a franchise, you may be able to finance a portion of it through a small business loan. Just make sure you have a good credit score, as you’ll likely need it to be approved for financing.
There’s no guarantee that you’ll make a profit as a Subway franchisee. However, Subway does have a reasonably good track record when it comes to profitability. According to Franchise Grade, the average Subway franchise generates annual gross sales of $490,000 and has an operating profit margin of 19%. This means that the average franchise owner can expect to make around $93,100 in profit each year.
Of course, your actual results may vary depending on a number of factors, including the location of your restaurant, the level of competition, and your own business acumen. Additionally, it typically takes several years for a new franchise to become profitable. As such, you’ll need to have enough financial cushion to cover your costs during the early years when you’re just getting started.
In addition to the initial investment, there are several ongoing costs associated with running a Subway franchise. These include royalty fees, marketing fees, and the cost of purchasing food and supplies from Subway.
Royalties are the percentage of your gross sales that you must pay to Subway on a monthly basis. The amount you pay will depend on how much money your restaurant generates in sales. For example, if your store does $50,000 in sales per month, you’ll need to pay Subway 4.5% of that, or $2,250.
Marketing fees are another ongoing cost. Subway requires all franchisees to spend a certain amount of money on marketing and advertising fees each year. The exact amount you’ll need to spend will depend on the size of your market, but it typically ranges from 8% of your sales. So, if your store does $50,000 in sales per month, you’ll need to spend $4,000 on marketing each year.
Finally, you’ll need to purchase food and supplies from Subway. The cost of these items will depend on the menu items you offer and the number of customers you serve. However, you can expect to spend several thousand dollars per month on food and supplies.
If you don’t have the cash on hand to cover the full cost of starting a Subway franchise, you may be able to finance a portion of it through a small business loan. However, Subway requires all franchisees to have a minimum of $80,000 in liquid assets, so you’ll need to have some money saved up before you can apply for a loan. Additionally, you’ll need to have a good credit score in order to be approved for financing. Here are some of the loan types that can be used when purchasing a franchise:
A term loan is a type of small business loan that is typically used to finance the purchase of a franchise. The loan is repaid over a fixed period of time, usually two to five years, with equal monthly payments. Term loans typically have higher interest rates than other types of loans, but they can be easier to qualify for if you have good credit. To qualify for the financing, you may need to provide a personal guarantee that states that you are personally liable for the loan.
A working capital loan is a type of loan that can be used to finance the day-to-day operations of your business. The loan is typically repaid over six to 12 months, with equal monthly payments. Working capital loans can be used to cover expenses such as inventory, payroll, and marketing. These loans have higher interest rates than other types of financing but are still more affordable than using credit cards to finance your operating costs.
You may also consider purchasing the real estate where your sandwich shop will be located. If that’s the case, you can apply for a commercial real estate loan to fund the purchase. Commercial real estate loans are secured by the building and have lower rates than unsecured business loans.
The Small Business Administration (SBA) offers a variety of loan programs that can be used to finance the purchase of a franchise. However, not all franchises are eligible for SBA financing. In order to qualify, your franchise must meet certain criteria, including:
-Your franchise must be located in the United States.
-Your franchise must have a minimum of two years of operating history.
-Your franchise must have a proven track record of success.
-Your franchise must offer a product or service that is in demand.
If your Subway franchise meets all of the above criteria, you may be able to get an SBA loan to help finance its purchase. However, you’ll need to have good credit and a strong business plan in order to be approved for financing.
SBA financing may have lower interest rates than other types of financing, but it also has high upfront fees and prepayment penalties.
There are several advantages to owning a Subway franchise. First, Subway is a well-established brand that is recognized all over the world. This can help you attract customers to your sandwich shop. Additionally, Subway has a proven business model that has been successful for many years. This can give you a roadmap to follow as you start and grow your franchise. Finally, Subway provides comprehensive training and support to all of its franchisees. This can help you get your business up and running quickly and efficiently.
There are also some disadvantages to owning a Subway franchise. First, it can be expensive to get started. You’ll need to have a significant amount of capital in order to finance the purchase of a franchise and to cover the ongoing costs associated with running it. Additionally, you’ll be required to follow Subway’s strict guidelines and procedures. This can limit your creativity and flexibility in running your business. You will also be competing against other Subway franchises in your area. This can make it difficult to stand out from the crowd and attract customers. In this case, location is key.Â
Depending on where your Subway franchise is located, you will also need to file regular sales tax returns and property tax returns.
It typically takes between six and twelve months to get a Subway franchise up and running. This includes the time it takes to find a suitable location, build out the restaurant, hire staff, and train them on how to make Subway’s signature sandwiches. Once your franchise is open for business, you can expect it to take several months to start turning a profit.
Whether a Subway franchise is a good investment or not will depend on your financial situation (including your net worth) and long-term goals, but Subway franchises tend to be a solid business opportunity. You’ll need to have the funds available to survive the startup period in which your operation may not be profitable. Before entering into a franchise agreement, you’ll want to ensure that you have a thorough understanding of the terms and conditions by reviewing all the disclosure documents, FAQs, and contracts provided by Subway.
If you’re committed to owning your own franchise and you meet Subway’s initial requirements, you should check out your funding options from a reputable company like Biz2Credit. Biz2Credit has a proven history of helping franchisees get started. When Eric McCarthy wanted to try his hand at owning a franchise, he turned to Biz2Credit for help and ended up building a successful business that just keeps growing!
