You would love to be your own boss. You are eager to set the hours that you want to work while managing a small workforce and providing services and products to satsified customers. Yet every product idea you have has already been done before and you are worried that your product idea would never see the light of day let alone capture any customers’ interests.
Franchises have become a viable avenue for entrepreneurs who want to run a small business. A franchise offers established products and services that have already been branded to the public. You pay a certain amount to be a part of the franchise as the franchisor gives you the rights to their brand, equipment, and decor design.
The Price of a Franchise
It’s hard to nail down an exact price of what a franchise may cost you, because franchisors decide on the types of various fees to charge their franchisees. The type of industry will also dictate prices, as personal service franchises can run about £24,000 while hospitality industries can cost 5 times that amount.
There are also a range of related fees attached to each particular franchise. You may have to pay for the advertising fees, training fees, and the like. Costs that you should expect to pay for the intial startup:
- Franchise fee: This is the upfront fee you will have to pay to be a part of the franchise. It may also cover additional aspects of operating the franchise such as hiring staff, training, obtaining equipment and furnishings, and locating and updating a storefront or business office.
- Royalty fee: Also known as a management fee, this charge is paid to the franchisor as an on-going percentage of your sales or as a fixed monthly fee.
- Insurance fees: The franchisor will state the types of insurance you will need based on the type of franchise you will operate. For example, you may need third-party motor insurance if you need vehicles for your franchise.
- Advertising fees: A franchisor will continue to promote and market their product or service brand as they will ask each franchisee to contribute a certain percentage of their sales into the advertising and promotional strategies. For smaller franchises, you may have to allot a certain amount of funds to personally promote the franchise you are operating.
- Working capital: You will also have to set aside working capital to run the day-to-day operations. These funds will pay salaries, equipment, suppliers and other related expenses until you gain enough money from sales to cover operational costs and to begin making a profit.
In addition to the fees discussed above, you will also have to pay to renew your franchise agreement with the franchisor as well as give a resale fee if selling the franchise in the future when you want a career change. Always ask the franchisor for a breakdown of all costs so you can figure out if a franchise business is the route you want to take into entrepreneurship.
Don’t forget the basic principles of running a franchise are the same as running any other small business – keep you expenses in check.