What are the total costs of buying into a franchise?
Are there any hidden costs? What’s in the fine print? How much money do I really need to start a franchise business?
Business Development Alliance discusses the costs that every entrepreneur needs to consider when starting a franchise business.
Most franchisors charge an initial fee to cover some of the costs for settling the franchisee in the business.
On-going fees are usually charged weekly or monthly as a percentage of the franchisees Gross Turnover or Profit, and in some circumstances, as a mark up on goods supplied directly by the Franchisor. It is also becoming common to have the fee set as a fixed sum reviewed periodically.
All potential franchisees should take into consideration the following:
- What are the initial capital investment requirements?
- Are there any ongoing loans for equipment that you may need to consider in your cashflow budgets
- Will you need funds (Working Capital) while training or until business begins to pay?
- Is there an initial contribution to the marketing fund that you are required to pay into before you commence trading?
- Is there an opening promotional payment that you are required to pay as part of your business launch? If so when do I have to pay this fee?
- How the royalty, advertising contributions or other ongoing fees are calculated and when are they payable?
- The costs of supplies – where do you get your materials, food, products from and what are the costs into store? Who pays for the freight?
- What are the leasing conditions for rent reviews and expectations of any upgrades to the shop fit out?
However, if you don’t know what to look for and what questions to ask then you will be leaving the door open for issues that might not arise in the short term but will show up in the long run.
Buying a franchise business can be one of the biggest decisions you will ever make. So take the time to research, do the numbers and have them checked by our accountant or business advisor.
For more franchise advice or franchise information, you can visit the Business Development Alliance website or call their contacts.