The true cost of running a franchise [Infographic]

The true cost of running a franchise

Our latest infographic dives into the true costs of franchising. You can either view the infographic here, or read on!

Initial costs of a franchise

The costs involved with acquiring a franchise varies wildly from one market sector to the next, as well as within each individual sector. With this in mind, it is important to decide what segment you are interested in and which specific brands before you can calculate an accurate start-up budget. Costs range from as little as £8,000, all the way up to more than £4 million.

Other initial costs

In addition to the purchase of the franchise itself, you need to consider additional costs such as legal fees, which will be incurred before you even sign on the dotted line. 

You may also incur fit-out costs for retail units and have to pay for signage, inventory, insurance, employee training, landscaping, business licenses and other essentials before you are up and running.

Entry costs

The entry costs for specific brands may also vary, depending on the size or population of the territory involved and the level of support provided by the franchisor. For example, a Computer Medics of America franchise costs £4,000 for a population of up to 150,000 and £16,000 for a population between 850,000 and 1,000,000. Incidentally, if you are interested in this particular brand, you need to bear in mind that after 5 years an extra franchise fee, equivalent of 25% of the original fee, is required for those franchisees who wish to renew for another 10 years. 

Consider liquidity costs

Another cost to bear in mind is that of initial liquidity. Until your franchise operation starts to generate a healthy profit, you will need to maintain liquidity to keep your new business afloat. Individual franchisors should have accurate figures on which you can base your estimated costs in this area.

The cost of starting a new franchise may seem high but you have to consider that starting any type of business required a fair amount of capital and unlike other business opportunities, franchises come with plenty of support. Furthermore, accurate start-up and running costs are available to you from the very beginning, which is often not the case when building a new independent business.

Can franchising be cheap

While there are some seemingly cheap franchise opportunities available, you should be careful when considering such investments. 

Low initial renewal costs are often a reflection of the services and support you can expect to receive, which are essential when starting a new franchise in any market sector.

Ongoing fees

In addition to your initial start-up costs, you will probably be required to pay a management service or royalty fee on a monthly basis. This may either be a fixed amount or a percentage of your sales. As mentioned earlier, some franchises charge renewal fees after a certain period of time, which will be started in your agreement.

Franchises are increasing

The number of businesses owned by franchisees has increased by 14% in the last 2 years to 44,200 and these businesses are becoming larger as the franchise sector matures. With annual turnover rising, more than half of all franchisee-operated businesses now claim to be turning over in excess of £250,000 a year.