Answers from the franchising experts.

There's a wide range of franchise options available to someone shopping for a franchise.

Retail. If you're looking for a retail location, plan on 30 to 50% of the total cost available in cash for the purchase. An average retail location begins around $80,000 and goes up from there. Many options fall in the $150,000 to $250,000 range, including clothing stores, restaurants, digital stores, office service stores, light manufacturing, and equipment stores. A large location or stand-alone building can average over $1 million.

Service. Service franchises often start at $30,000 and go up to around $150,000. They can be ideal for first-time business owners or investors looking to deploy a smaller amount of capital. We encourage fiscal responsibility in managing cash flow and initial investment cost, which makes service businesses an ideal option for many franchise owners. Categories include business services, professional training, construction-related services, pet care, cost reduction, child development, and senior care.

It is different for everyone and every business. Franchising is a unique system in which the franchisor can help you build a marketing plan that shows the production you need to achieve at each step to reach your financial goals. Some franchises have a quick return on investment, sometimes only a couple of months. Others estimate several years to return the investment.

Earnings depend on your willingness to follow the system, the franchise system's realistic earning capabilities, and the focus placed on marketing and sales. Some franchises earn $40,000 a year and others earn over $1 million a year.

The goal is not only to earn a profit from daily business activities, but to have the franchise finance other investments and assets such as real estate, equipment, and other ventures. A franchise can help you take advantage of major tax savings, work as a vehicle to purchase assets, and in many cases create ongoing passive income streams once the business is set up and functional.

We'll give you an evaluation tool to help you ask the questions needed to investigate the earnings of franchisees currently in the system. There are simple ways to obtain these numbers, understand the total royalties collected, and see how much an individual franchisee earns.

You're always allowed to ask a franchisor for cost information. They are required by the Federal Trade Commission to provide it, and they may disclose earnings information only if they have properly documented it in their Franchise Disclosure Document. Earnings can be more challenging to obtain without knowing how to read the financial statements and what to ask the franchisees. We provide tools to help.

There are many funding programs available.

Retirement Plan Rollovers. The most common and widely used funding option today is a 401(k) or retirement plan rollover. Many new franchisees choose this route because it allows them to take a salary from day one, eliminating paycheck phobia. You can reinvest a larger percentage of your earnings as pre-tax dollars, and the government encourages rollovers by not taxing the money when it is used in an investment such as a business or franchise.

Unsecured Lines of Credit. Available to individuals who want to leverage their entire investment. Little money is required down and an individual can borrow up to $150,000. There are considerable fees added to the borrowed amount, and interest rates run around 12%. This can be a great option for someone who does not want to use cash but wants to get started. If you take this approach, be very conservative with your initial purchase and choose a low-cost franchise system.

SBA and Traditional Loans. To qualify for an SBA or traditional bank loan you generally need a credit score of 700 or above. Owners must have management experience in the same or similar field. The lender requires franchise documentation and verifies the owner's equity investment of 30 to 50% up front. They also verify exactly what needs to be funded with the loan, so be specific and include a well-thought-out breakdown. The final requirement is a detailed and believable monthly financial projection for years one, two, and three.

Leverage your investment with borrowed funds if you do not have a 401(k). We recommend no more than 70% of your investment amount go toward business set-up fees. For those who are extra conservative, 50% is a safe number to work from. It may take a little longer than expected to get everything up and running, so having that extra cushion for working capital is a responsible way to approach the business.

Many business owners have one spouse keep their current job while the other starts the business. This keeps cash flow coming into the household during set-up. Many franchises also allow a franchisee to start on a part-time basis, so you can build the business while maintaining your current income.

We recommend having six months to one year of living expenses set aside while purchasing a franchise. This allows you to comfortably transition into the business and build it to replace your former income.

Characteristically, a franchisor sells the right to a franchise for an initial flat fee called the franchise fee, in addition to the actual costs of opening a franchise unit in your local market. Franchisors often receive ongoing payments such as royalty fees, taken as a percentage of sales, in exchange for back-office support and services. Many franchisors also sell supplies or services to their franchisees.