If you are researching franchising, you may be looking at any number of franchise websites, visiting exhibitions or reading industry magazines and newspapers.
Through all of these you will see businesses advertising their franchise opportunities and franchises for sale with details about the fees or cost of investment. However, not all fees are calculated equally.
That’s not to say 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 to make it work and they will include some or all of these components in their quoted costs.
SIMILAR
For example, you may find two very similar businesses with very different start-up costs. This may be because one is taking a much higher fee, one has extra equipment or vehicles you weren’t aware of or it may be that one has provided the costs including 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 from the 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 operation of your potential business:
• Franchise fee (the fee to use the brand and system, etc).
• Any necessary equipment (stationery, machinery, office equipment, etc).
• Any necessary initial stock.
• Initial training.
• Initial marketing or sales launch.
• Any necessary property costs, including fittings (average).
• Any necessary vehicles (specified whether this is the total cost of the vehicle or the first repayment if on finance).
• Any necessary subscriptions, memberships, licences, etc.
• Any necessary staffing costs (average).
• Any other element for the initial launch of the business.
• VAT.
• Working capital.
Each franchisee operation in the same network may have slightly different costs, so ask for a ballpark, all-inclusive start-up cost for a franchisee in the network. However, remember this is an indicator only and business liabilities such as vehicles, staffing or property can vary and mean the actual cost of a specific franchise opportunity is noticeably more or less.
FINANCE
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, as banks like the franchise model, which offers proven systems and operations.
They 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 (www.thebfa.org).
It’s important to always ask for the franchise department, whose staff understand the 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.
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 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.
Visit www.thebfa.org for objective advice, tips and information, as well as a list of all accredited member franchisors and advisers.