One of the most common questions a business professional will want to know before investing in a franchise is what costs will be incurred. There will be both upfront costs and some ongoing costs. Let’s explore this in more detail
Upfront costs
A franchise owner will expect a fee to be paid for the investment into their business. This is to cover costs such as licences, access to operational systems and full training. Legal fees will also need to be considered which are used to cement the working relationship, alongside this will be accounting fees to make sure financial statements are accurate and both parties can proceed accordingly with a legally binding agreement.
Ongoing costs
There are several ongoing costs, similar to those that exist when running a non-franchise business:
- Property – depending on the type of franchise a commercial property might be required which will involve monthly rental or mortgage costs
- Insurances – as well as standard business insurance there might be a need for liability insurance, life insurance and disability insurance.
- Salaries – employing staff will be essential to fulfil growth plans so monthly salary commitments will need to be considered.
- Equipment – whether it is software, office furniture or property fit-outs any equipment will need to be monitored and upgraded when needed.
MSF
MSF is a franchising industry term that stands for marketing service fee. This is the charge which a franchisor will make of a franchisee monthly as an ongoing commitment for being associated with their brand. This is typically calculated as percentage of the franchisee monthly net turnover.
The key takeaway is that investing in a franchise business can be incredibly rewarding and bring excellent earning potential. However, budgeting is a must and any new franchisee must be aware of both the upfront costs and the ongoing costs.
If you have any questions or would like some help with securing business finance for investing in a new franchise, please call us on 01993 706403 or e-mail hello@ngifranchisefunding.co.uk.