Why do franchise investment levels vary so much?

Author: John Pratt

answered by John Pratt

Senior Partner at Hamilton Pratt

John Pratt writes:

Franchises, like businesses in general, come in all shapes and sizes. Some envisage franchisees working from home, perhaps on a part-time basis, others may require a franchisee to operate from a van and yet others may envisage substantial retail premises being used for the purpose of the franchise.

You should bear in mind that not only will you have to pay an initial fee to the franchisor, but you will have to buy equipment and possibly a vehicle as well. If you’re operating from premises, you might have to undertake a shop fit and pay a premium on the lease, so you need to know precisely what you’re going to have to pay out and when.

You also need to remember that your business will not be profitable immediately. It may take over a year before it’s in profit, so you will have to have sufficient funds with which to live during that period.

When you have calculated the total initial outlay, you need to establish, with the help of the franchisor and talking to other franchisees, the likely levels of profit to ensure it makes sense to incur that initial outlay.

John Pratt is senior partner at specialist franchise firm Hamilton Pratt and has advised franchisors for over 25 years.

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