A common question we often get asked is what should I be paying for a new franchise? Most people think it is just a lump sum for the initial investment, however there are a lot more factors that need to be considered.
The upfront cost or franchise fee
The first initial cost is the investment in the franchise. This will be to cover areas such as training, ongoing support, start-up and onboarding, brand rights and exclusivity agreements. This fee will be something that has been carefully planned by the Franchisor, they will have market tested it to ensure that it is right for both you, as the new Franchisee, and for them. Before agreeing to the fee make sure that you have spoken to other Franchisees who have already invested in the business.
Professional fees
It is vitally important to seek the support of business professionals when making the final decision as to which franchise to invest in. They can provide a second set of eyes to evaluate all the contractual obligations and will be well trained to spot any red flags or areas that could cause concern in the future. It is also highly likely that you will need the support of a finance specialist such as an accountant both at the start-up phase and throughout the lifecycle of the business. Ensuring you budget for all types of professional fees will be an important process.
A healthy cashflow
Business ownership is such a rewarding process especially as you have the ability for unlimited earnings and working the hours that suit you. However, as with everyday life there could be unexpected expenditure that hits you at any stage. This could be an increase in monthly costs, a broken piece of equipment which needs repairing, new taxes, or the need for extra staff. Even if you have a successful business that makes good profit it doesn’t guarantee that you will have a healthy level of cash. During the budgeting stage of the start-up you will need to clearly understand the levels of cash you will require in the business, which also accounts for any unexpected costs. Often this will be as simple as utilising some form of business finance so that you can maintain a healthy level of cashflow.
Business premises
Depending on the type of franchise you invest in there could be a need for business premises. Aside from the purchase cost and fit-out fees there will also be monthly rental or mortgage fees, insurances and stock to consider. It can be expensive, so again make sure that you have the right business finances in place. Also, make sure that it is flexible so that should you need an extra cash boost, is readily available.
So, in conclusion there is no set fee or scale of how much a franchise business will cost. There are lots of variables depending on the actual business type and facilities required. The key consideration is to ensure that you are fully aware and as accurate as possible with the predicted expenditure for at least the first 12 months of the business start-up. Plan well, seek the right professional expertise and you can quickly become the owner of a successful franchise business.
If you have a question or need help with any aspect of franchising, please feel free to call us on 01993 706403 or e-mail hello@ngifranchisefunding.co.uk.