A low-cost investment doesn’t always mean minimal returns. Here’s everything you need to know about buying a business on a budget
Starting a business need not cost you a fortune – but starting as a franchisee could make your investment go further, faster. Of course, you have to pay an upfront fee to start a franchise, but it’s possible that you could start a franchise for less than the cost of starting up a business on your own.
Having a limited amount of money to invest is not unusual: research for the British Franchise Association Royal Bank of Scotland Franchise Landscape Report 2018 showed that the franchise fee was the number one financial consideration among 85 per cent of those setting up a franchise, at all levels of investment.
In fact, knowing how much you have to invest, taking into account not just the basic franchise fee but also the need for capital to keep you going until the business starts making enough profit to pay you a wage, is something all franchisors will look for – whether you are investing a six-figure sum or just a few thousand pounds.
Limited funds need not stop you from getting into business though. With a low-cost franchise, you are more likely to be able to find start-up capital from your savings, a redundancy payout or money pooled by family or friends. Avoiding the need to borrow means debt repayments do not eat into your profits.
How franchises can help you leverage funds Even if you need to borrow to get started, with an established franchise you are likely to only need a third of the start-up capital required, because banks or other lenders will commonly lend 70 per cent of the total investment to suitable applicants, provided they are approved by a reputable and well-established franchisor.
Chris Wooton, managing director of the Poppies cleaning franchise, points out: “The total investment here is £27,000, including working capital, but we have been in business for decades and have built good relationships with banks, so they will consider lending 70 per cent of the total investment to suitable people. That means you can get started with £8,250 of your own money.”
He adds: “This means you can leverage the money you have to raise a far larger sum. This is something that would be far harder to do if you approached a lender looking for funds to invest in a business that had no history of proven success in the market.”
It also means that you are not limited in your choice of franchises to those that you can pay for outright.
Be careful not to start your business under-capitalised. Starting a business on a shoe-string sound romantic and exciting – but it makes it more likely that you will fail. Running out of capital is the number one reason that start-ups go bust. Franchisors know this and will want to see that you have enough capital. Insufficient capital is the number one reason that franchisors turn down prospective franchisees (accounting for 61 per cent of turn-downs).
Low cost should not mean low commitment
Just because you are seeking a low-cost franchise don’t be tempted to think of it as a “pin money” job requiring low commitment. It’s true that many lower-cost franchises are designed to be run part-time, especially at first, but franchisors expect commitment to business growth because success for you means success for them.
Bear in mind that you are not buying a job
Hands-on franchises, where you do the work yourself (at least at the start) can look like ‘buying a job’ but franchisors do not see it like this. ‘Seemed to be just buying a job’ is the reason for 38 per cent of prospective franchisees being turned down by franchisors.
Choose your franchise carefully
Take as much care and do as much research before investing in a low-cost franchise as you would if you were investing a large sum. It’s true that if your low-cost franchise goes belly-up you will lose a lot less money than you would have you invested hundreds of thousands, it still means you will have wasted a lot of your valuable time and effort.
No one likes to see their business bite the dust, whatever their investment, so check that you have chosen a franchise in a sector of ongoing demand, where the franchise model is proven to work, and where you feel confident in the expertise of the franchisor.
Check the legal situation
Where lower investments are involved, it can be tempting to save money by not getting the franchise contract checked out by a franchising lawyer before you sign it. This is risky because you need to understand the full implications of the contract for you as franchisee, whatever your level of investment. Typically, franchise lawyers offer a fixed price contract review service that will check the contract and explain the implications to you for a few hundred pounds – not much to pay for a bit more peace of mind about what you are buying.
Start small, grow big
Many franchises, despite allowing you to start small, will expect you to be committed to growth and will help you expand, take on staff and move into management.
For instance, if you start a low-cost van franchise, doing the hands-on work on your own, they will expect you to grow to take on other operators to run vans within a relatively short time – say, two years, so you will be under pressure to meet these performance criteria.
Chris Wooton says: “We don’t have strict performance criteria like this, as we want to encourage people to achieve their ambitions, and if that’s a lifestyle franchise that can be fitted around a family, that’s up to you.” He offers a standard business franchise plan and a ‘high achiever’ plan that requires franchisees to commit more of their time to the business and reinvest in it earlier.
However, he adds: “We are increasingly looking for people who want to prioritise business growth, and who are not specifically looking for a cleaning management franchise – though an interest in homes and people is a big advantage.
Check the training
Investing in a low-cost franchise need not mean accepting skimpy training – but check what you get. In some cases, training from franchisors can even lead to professional qualifications.
Franchisees investing in the Healthyfeet mobile footcare clinic franchise get clinical training which includes a course delivered by selected foot health practitioner training centres, so you can become a fully trained and registered Foot Health Practitioner. This is a level three qualification which can be achieved in three to four months. The franchise also provides marketing and business development training.
These come as part of the franchise package, which requires an investment of £9,995 for a part-time business and £14,995 for the full-time option. The franchise fee can be adapted for those who already have the FHP qualification, making it a way for existing practitioners to set up their own businesses.
Debra Rose, who set up the Healthyfeet franchise in 2018 after running the business herself since 2011, says: “The demand for foot care has grown year on year and our service has become more popular than ever since the pandemic, as elderly clients, in particular, feel more secure having the treatment provided within their homes, and card machine payments now make it easier to pay too.”
“The role is extremely rewarding and gives you the opportunity to manage your own time and appointments, which are typically Monday to Friday nine-to-five,” says Debra.
“It can also appeal to couples who can both benefit from making the most of their franchise territory. Where there are feet, there is a demand!”
Debra has 10 franchisees now and is transferring her own franchise, Hinckley, to her latest franchisee so that she can concentrate on the growth of the brand, looking after her franchisees and recruiting more.
Healthy Feet helped Lisa get her foot in the business door
Lisa Reddy launched her Healthy Feet mobile clinic in March 2019, covering the Bolton and Darwen area of Lancashire. Lisa says: “Going into a franchise was not a decision that I took lightly. Leaving a well-paid, secure job of 15 years was initially a daunting thought, but the job did not fit well with my young family, and it was quite stressful.
“I needed a job that was flexible, financially on a par with my previous role and that ideally did not involve any day-to-day stress.”
She now has a Diploma from The College of Foot Health Practitioners and has found that her investment soon paid off. “Very soon after I started my diary was booked up a month in advance,” she says.
Two years after the launch of her franchise, it dramatically improved her work-life balance.
“I can work flexibly to suit my lifestyle and family and have the pleasure of being my own boss. I work part-time hours, but financially it’s comparable to working full time and from the outset, I was supported and mentored to get the best out of my business.
“It is hands down one of the best decisions I ever made for myself, my own personal development and my family.”
Linda Whitney writes about franchising for the Daily Mail, What Franchise and many other publications.