One of the benefits of buying a franchise is that it often takes less time to establish and become profitable. Also, the business model is already proven. In most cases, however, the initial start-up costs of buying a franchise are higher than starting a business on your own. In addition, there are ongoing costs to consider.
Of course, the precise cost of buying and owning a franchise will vary depending on the franchise. The types of costs you may incur will also vary. That said, there are some costs that are fairly common.
This is the headline fee when looking at buying a franchise. It is normally an upfront fee and can range from hundreds of euros to hundreds of thousands. It is crucial to the franchisor’s business model and is meant to cover the cost of creating the franchise business.
The franchise fee gives you the right to become a franchisee and trade under the company’s name. It can also include things like:
- Specialist equipment
- Assistance with establishing the franchise, such as identifying a suitable location
- Help with market research
- Help with recruiting employees
This is to purchase the fittings and equipment needed to run the business. It can include:
- Renting premises
- Refurbishing or renovating the premises
- Fitting out the premises
- Purchasing a vehicle
- Purchasing tools or other equipment
One of the biggest mistakes that potential franchisees make when starting out is not having enough working capital to sustain the business until it starts to make money. This includes paying employees, suppliers, and other expenses required for the day-to-day running of the business.
Before you agree to buy a franchise, you should speak to the franchisor to find out how much working capital you will need to sustain the business in its early days.
In most cases, you will also have ongoing fees you will have to pay the franchisor. This fee is usually referred to as a royalty or management fee. It can be fixed where you pay the same amount every month, or it can be a percentage of the sales you make. This could be 10 to 15 percent of your monthly sales.
Handing over this amount of the money does cause some frustration to some franchise owners, but good franchisors will justify their fees by providing you with ongoing support and help. After all, the more successful you are, the more money they will make.
With this in mind, you shouldn’t simply look at the total ongoing cost when considering a franchise. A franchise that has a higher ongoing cost but that offers you good support might be the best option.
Other Fees and Cost Considerations
- No ongoing fees – some franchisors don’t charge an ongoing fee. This can look attractive but the business model in this situation is usually for them to make their money by marking up the products they sell to you.
- Advertising fees – many franchisors have a central advertising fund that you will have to contribute to. This advertising promotes the overall brand.
- Renewal fees – some franchisors charge renewal fees when the original agreement expires
- Professional services – as with starting any business, you may incur professional service fees when buying a franchise including solicitor fees or architect fees.
- Other business costs – you will also have to pay other costs associated with running a business, such as insurance.
Before buying any franchise, you should speak to the company to get full details of what it will cost you. This includes how much it will cost in the start-up phase as well as ongoing costs. It also helps to speak with an accountant.
For more help with running your business, or advice on the costs associated with buying a franchise, please contact a member of the Gilroy Gannon team.