It’s not just the start-up costs that franchisees need to work out when they look at a franchise opportunity. There is a wide range of budgeting concerns that need to be considered and which you should be putting all these into your future business plan.
The first couple of years while the franchise begins to bed in are obviously critical to success. Making sure you have enough money to survive this period and stay on track, not only with the business but also in your personal life, is vital. Of course, you need to be realistic about how much money you are going to require and whether you can handle it reasonably comfortably:
The Franchise Fee
The franchise fee is going to be one of your biggest initial investments. This is the amount you pay to use the brand and get the training you need. The amount will vary depending on the type of franchise you are taking on and how much you can or are willing to pay will determine who you are going to choose. Some franchises do offer different incentives and payment arrangements which may help you to spread the cost in the short term.
Added onto the initial franchise fee, you will also have to pay a service fee on a weekly or monthly basis. This will again vary from franchise to franchise but could be as much as 20% of your sales. The average in the UK is around 8%. Most franchisors prefer to base any service fee on sales rather than profits simply because it’s easier to monitor.
You’ll also need some of your own working capital that will give you the leeway to build your customer base and cover any expenses that may arise out of the franchise arrangement. This can often be difficult to judge and you need to be realistic about what you are going to achieve and how quickly you are going to get there. It might include marketing and advertising as well as employing staff to help you move forward. Getting advice from a franchise specialist who knows your sector can be a useful way to gauge this kind of expense.
Are you going to have to invest in infrastructure and services relating to your franchise? This also varies a good deal between different franchises and it’s important to be clear about what is going to be your responsibility. A retail franchise may well have a bigger need for capital investment than a home office one where you have most of the infrastructure in place already. You also need to think about the finances you require to support yourself during the start-up phase. This includes covering your household budget so that you aren’t struggling to make ends meet once you’ve covered the financial responsibilities for the franchise. Learning basic budgeting skills and being realistic about what you can afford and how long it will take you to get the business off the ground are all important.
One of the main reasons any business fails is because it hasn’t got the solid financial infrastructure in place to get over that initial stage of growth and development. This means you need to take a very close look at the budgeting side of things and how it fits into your overall business plan before you settle on a particular franchise.