Cost of buying a franchise business
How much should you pay for a franchise? Why do some cost more than others?
When trying to identify how much should you, you need to look at what can you afford and what do you get for your money.
To work out how much you can afford you need to look carefully at your family situation and how much money you will need to live on. Work out how long you can live with no salary coming in, as this may be the case with the franchise you are buying (unless it is a franchise resale, you are very unlikely to be making money from day one) and then compare against how long you need to be running your business to make a profit. Make sure your projections include the worst case scenarios when budgeting. Can you afford it? Is it realistic? Be as accurate as possible because if you get your projections wrong, the business could fail.
Identify all costs involved in buying the franchise – legal fees, deposits, initial franchise fee, ongoing fees – as well as the working capital you will need. The disclosure document should outline all costs.
Franchises vary in cost depending on the type of industry they are in, if premises are needed, equipment required, support provided etc. Mobile and home-based franchises will be more affordable than retail franchises or those that require an office space. Some franchises you can run by yourself as a sole operator, others require you to recruit staff. The size and location of the franchise will also have an impact on its cost.
The more established a franchise is, the higher the investment will tend to be. In return however you should get a greater level of support from your franchisor. E.g. Most franchise companies will not have the resources to compete with the likes of McDonalds, Domino’s Pizza and other global brands, but they should provide adequate training and support programmes that reflect the size and type of their franchise business.
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