The cost of investing in a franchise can vary greatly. The British Franchise Association explains why
If you are researching franchising, you may be looking at any number of franchise websites, visiting exhibitions or reading franchise magazines.
Through all of these media, you will see businesses advertising their franchise opportunities with details about the fees or cost of investment. However, not all fees are calculated equally.
That’s not to say that franchises are trying to mislead you - it’s simply that with 1,000 or so brands using the model, each has different requirements, tools and products and they will include some or all of these components in their quoted costs.
For example, you may find two similar businesses with very different start-up costs. This may be because one is taking a much higher fee, has extra equipment or vehicles you weren’t aware of or the costs include the initial repayment of a vehicle, whereas the other has provided the total repayment cost.
What this means to you is that you need to be careful about comparing costs when you don’t fully understand what lies behind them. Don’t write anything off because of costs alone and don’t commit to a franchise opportunity on that basis either. Do your research in full, ask lots of questions and get the full measure of the business.
Specifically, check which of the following are included, where relevant to the operations of your potential business:
* Franchise fee (the fee to use the brand and system, etc).
* Equipment (stationery, machinery, office equipment, etc.)
* Initial stock.
* Initial training.
* Initial marketing or sales launch.
* Property costs, including fittings.
* Vehicles (specified whether this is the total cost of the vehicle or the first repayment if on finance).
* Any necessary subscriptions, memberships, licences, etc.
* Staffing costs.
* Any other element for the initial launch of the business.
* Working capital.
Typical total start-up cost Franchisee operations within the same network may have slightly different costs, so ask for a ball park typical all inclusive start-up cost for a franchisee. However, remember that this is an indicator only and business liabilities such as vehicles, staffing and property can vary and mean the actual cost of a specific franchise opportunity is noticeably more or less.
Covering the costs
You may be able to cover the total start-up fee of a franchise purely from your own savings. However, in many cases a loan will make up part of the finance. Franchising has stood the test of lending well in comparison to other sectors during the downturn - banks like the franchise model, which offers proven systems and operations.
They also like British Franchise Association member franchises because they know the business model has been scrutinised by the industry’s trade association as part of its membership accreditation process. The bfa has high street banks within its membership, contact details of which can be found on the bfa website. It’s important to always ask for the franchise department when contacting a bank, whose staff understand the niche model perfectly.
As a general rule, banks will lend up to 70 per cent of the start-up fee for an established franchise, decreasing for those brands newer to the sector.
Minimum personal investment
Some franchises will expect you to hold, and prove you hold, a minimum percentage (rather than just a minimum set amount) of the total start-up cost in liquid capital. This is typically, where set, 30 per cent of the total average cost, but can be significantly higher or lower.
For more information and advice on researching franchise opportunities see the bfa’s online guide to joining a franchise - and with careful research and a lot of hard work you might be able to start watching the pounds come in yourself.