Different Costs You Have to Bear While Starting a Franchise Business
Eastern Eye Staff
In this modern world, many franchise businesses are getting started. People prefer starting a franchise business because there is no need to put much effort into making their business successful. These are already well-establish brands that do not need marketing.
But, people willing to start a business are concerned about franchise cost. Usually, a small businessman can’t afford a franchise business because it’s very expensive and requires lots of money to spend in different places. So, if you are willing to open a franchise, you must know about the different costs you have to bear.
What is a Franchise?
A franchise is a paid license that a franchisor sells to the franchisee. Whenever a person buys a franchise of any brand, they get access to their trademarks and personal knowledge like recipes and processes. Thus, get legal power to sell the products under the franchisor’s name. You must pay the annual license fee and some start-up charges to take a franchise. In addition, a franchisee also has to pay some commission of their earnings to the franchisor.
Why Does a Business Offer Its Franchise?
Offering a franchise is a great way to increase the business’s geographical reach. In addition, it also helps to increase the market share. People prefer taking these franchises because it offers them a chance to sell products under the name of a well-established company.
Most entrepreneurs purchase franchises because it is one of the best ways to start a new business. In addition, it has only a one-time cost; once you have purchased the franchise, there is no need to spend money on resources to promote your business.
Which is Better, Franchise or Start-up?
If you want to run a business in your name, you can consider starting a new business where you can do anything you wish. But remember, new business start-ups have a very low success rate. But, on the other hand, it gives you the freedom to do business in the way you want.
You will get surprised to know that approximately 30% of the business shut down in their first year, and another 40% don’t survive more than ten years. According to the data, only 30% of business start-ups are still going on after ten years.
If you are ready to take the risk, then you can go for a new start-up, but if you want a safe and stable business, then you can go for a well-established business that is a franchise. Remember, you have to do business according to the rules and regulations made by the franchisor. Due to the success stories, franchises are getting very popular.
Expenses That You Have to Bear
If you are willing to invest in the franchise business, you must know about several expenses you must make to establish a business. The expenses are not limited to the license fee; there are many additional expenses that you have to make.
The Franchise Fee
When you apply for the franchise, you must pay some fees to access the license. After paying this fee, you will get the right to start your business using the brand name. The cost of the license fee depends on the brand; the bigger the brand higher the fee. Some people avoid taking a franchise because it’s very expensive. Usually, the fee is between $30000 to $50000.
The start-up cost is an expense you must make to open a business. Your investment may vary from brand to brand. If you have a low budget, you can take a franchise of lower brands, where you can begin your business for under $25000. In addition, you will find many companies that need millions of dollars for a start-up.
If you plan to take a mcdonald’s franchise cost, you may even have to pay a lot more because food franchises are much more expensive than service once. According to the research, if a person is willing to buy a franchise, he has to bear an average expense of $150000.
You must make the outlet according to the franchisor whenever you buy a franchise. Most brands do not allow a franchisee to make the interior and exterior of their wish. The brand owner will decide even the size of the outlet. That may cost you even more high.
Recurring fees are additional fees you must pay for benefits you are getting as a franchisee. These benefits include technology, royalty, and marketing and advertising fees. The franchisor charges all these expenses in the form of recurring fees.
As most of the franchises are retail shops, so you need to arrange selling materials. You will find most of the franchisors bound franchisees to buy material from them. It is another source of income for the brand. Even some brands have minimum stock value, which should always be available at your store.
What Are the Requirements to Buy a Franchise?
As only reputed brands offer their franchise, they want only a reputed candidate to get a chance to buy it. Therefore, to buy a franchise of any brand, you need to meet their requirements.
As we all know, businesses take some time to get profitable. So a brand owner wants a franchisee to have some liquid cash with them (anything that can be converted into cash immediately) to cover all the expenses that may occur in the first financial year.
No brand can take a risk by giving ownership to a person who is not able to handle the risk of business. So it’s essential to have a net worth that meets the requirement of your franchisor. The minimum net worth can vary from brand to brand, so you can consider taking a low-budget franchise if you don’t have enough new worth.
For purchasing a franchise, you need to meet the brand’s requirements, and there is a need t have enough cash to bear the expenses of entrepreneurship. But, if you don’t want to work under the guidance, you can consider starting a new business start-up; it will offer your more freedom.