Are there any hidden costs? What’s in the fine print? How much money do I really need to start a franchise business?
Most franchisors charge an Initial Fee to cover some of the costs for setting the franchisee in business. On-going fees are usually charged weekly or monthly, as a percentage of the franchisees Gross Turnover or Profit, and in some circumstances as a mark up on goods supplied directly by the Franchisor.
It is also becoming common to have the fee set as a fixed sum reviewed periodically. You must also take into consideration the following:
• What are the initial capital investment requirements?
• Are there any ongoing loans for equipment that you may need to consider in your cashflow budgets
• Will you need funds (Working Capital) while training or until business begins to pay?
• Is there an initial contribution to the marketing fund that you are required to pay into before you commence trading?
• Is there an opening promotional payment that you are required to pay as part of your business launch? If so when do I have to pay this fee?
• How are the royalty, advertising contributions or other ongoing fees calculated and when are they payable?
• The costs of supplies – where do you get your materials, food, products from and what are the costs into store? Who pays for the freight?
• What are the leasing conditions for rent reviews and expectations of any upgrades to the shop fit out?
When considering to enter into a franchise it is critical that you do your homework and gather as much information as you can.
The Franchisor will need to furnish you with a Disclosure Document that outlines running costs of the business, however, if you don’t know what to look for and what questions to ask then you are leaving the door open for issues that may not arise in the short term, but they will arise.
Buying a franchise business is so emotionally charged and is one of the biggest decision you will ever make….so take the time and do the numbers and have them checked by your accountant and your business advisor.
For more information on buying into a franchise please contact:
Mark Fernandez is Director of the Business Development Alliance. Visit www.bda-online.com.au for more.