The Cost of Investing in a Franchise
The price of a franchise investment depends on a number of variables including the type and size of the business as well as the area you’ll be operating in.
An initial outlay, which typically consists of the following expenses, can range from £5,000 to £500,000.
What type of fees and costs are involved in Franchising?
Initial Franchise Fee
When purchasing a franchise, there will be a one time fee to buy into the franchise and this usually accounts for 5-10% of the total investment required. However, this will vary between franchisors and you will need to check what their terms are.
Training fees can be included in the initial franchise fee but sometimes it can be a separate cost – you will be able to find this information out from the franchisor.
Some franchises will need a premise to operate from and in some cases, the franchisor may sublet a premise. Alternatively, the franchise can go down the route of purchasing their own property; usually with a commercial mortgage or a bridging loan.
If you have a premise, you will need to get it fitted out to meet your business’ requirements. That could be a fully functioning kitchen with a counter, installation of fridges and freezers to sell cold products or shelves and counter space for customers to shop and buy.
Vehicles and equipment
Vehicles and equipment might be essential in the running of your business and if you need to purchase a lot of vehicles and equipment, the costs can add up quickly. However, if you choose to go down the asset finance route, you’ll be able to make affordable repayments and preserve working capital.
The initial stock may need to be bought directly from the franchisor or by an approved supplier. You are most likely able to get guidance from the franchisor about how much stock you will require to get the business started and how long it will last. This is likely to be another upfront cost for your business.
Along with the initial set up costs, you will need working capital to ensure that the business is able to pay the basic bills while income is being generated. These bills can include salaries, energy bills, rent or mortgage repayments and suppliers.
Marketing will be an ongoing cost from initially promoting the new franchise to continuous advertising and promoting offers and deals. Marketing can be a mixture of paid social media advertising, radio advertising, printed collateral and the costs could also include hiring a part time or full time employee.
Finance for Franchise Businesses
With a lot of costs involved in purchasing, setting up and operating a franchise, a finance facility can give you flexibility within your business and preserve cashflow.