If you’re looking into opening a franchise, you know that you’ll have to pay upfront. Though we all know you have to pay up for franchising fees, are you aware of the other costs and expenses involved?
Some people aren’t. When starting a franchise, you have to realize that it’s similar to starting your own business. Although the name and brand are already set up, everything else should be done by you.
It can be an excellent investment or a fatal move. Marketing research and feasibility studies may not be included in your contract. Some franchises also require more documents and permits than others. Before you sign the agreement, you’ll have incurred a few expenses, such as travel costs and attorney fees.
Here are five expenses and costs involved when opening your franchise.
Franchise fees have many different ranges. It varies across industries and brands. Fees are also known as the initial fee. A franchise fee is the entry cost that you’ll be paying to the company.
Most people confuse the franchise fee as the cost to purchase the right to operate it in your area. However, it’s just the one-time fee that allows you to use the brand, trademarks, system, and other things needed for operating.
Even If you can pay up, there are still a few requirements, such as your Net Worth and how liquid you are. Let’s explore these two categories.
Franchisors risk their name they allow a franchisee to operate using their brand. That’s why they often look at an individual’s net worth. Not everyone can be a candidate.
The ROI for opening a franchise can take years. As much as possible, franchisors prefer that their franchisees succeed with the operation. That’s why they make sure that the franchisees can sustain the business since breaking even can take time. You’d be bleeding on your first run.
It can take up to years before you generate revenue. They need to know how long you can keep things afloat or if you’re capable of doing so.
The franchise fee is just a one-time payment that allows you to operate the brand’s business independently. However, there are also monthly royalty fees that you need to pay to the franchisor.
The payment scheme can differ per company. Some companies ask for a percentage of the sales while others ask for a fixed amount.
Once the franchisor has approved you, you now have to start building it in the location you’ve chosen. That means you need a real estate agent, a construction firm, and even an interior designer in some cases. Some franchisors offer logistical support, but in most cases, you’ll be on your own in this part of the deal.
Materials and Equipment Expenses
Miscellaneous expenses are probably the part where you’ll most likely spend the most. You also need to buy the necessary equipment that the franchising business needs. If it’s a restaurant or a fast-food chain, you’ll need to buy stoves, fryers, freezers, or chillers. You’ll also need to buy equipment like computers, LCDs, air conditioning and heaters. You shouldn’t also forget about furniture and fixtures.
That’s only one part of it, though. You also need to have a steady supply of the materials you need. There are also maintenance costs in case one of the equipment needs repair.
If you’re opening, there are also costs involved in your day-to-day operations. You need to pay for your employee’s salaries, the rent of the building, uniforms, utilities, supplies, loans, and even maintenance. There are other expenses, such as paying professional fees for advisors, lawyers, or consultants. You know how much it takes to operate the business so you can find a way to break even if you haven’t reached your ROI yet.
What will you choose?
Franchising is a considerable investment. There are many risks involved, but it’s not as risky as opening your own business. With franchising, the franchisors can give you the numbers to have an idea of how much you’ll be spending upfront and what you should expect when you start with the operations.
The entry costs and initial expenses can be high, but a franchise generates revenues when executed properly. You’ll just need to do proper research and an excellent strategy to keep yourself afloat while waiting for the ROI.
The initial costs can be hefty, but the payout can be huge. You just need to be aware of the costs involved so you can make a better strategy. You should also check if there are available discount programs or deals with your franchisor to save on these costs.