High Cost vs Low Cost Franchises

High Cost vs Low Cost Franchises by Neil BurnardWhen deciding on what franchise to invest in, a big factor can be the cost to invest. Some franchises cost under £20,000, while others can be upwards of £75,000 or even more. For most people, that’s a difference significant enough to seriously limit their options or at least make them think twice before jumping in to an otherwise amazing sounding business. There are some key differences to keep in mind when deciding, so here is a quick run down of what to expect.

Low Cost Franchises

At the lower end, it’s important to understand that while the entry cost will probably cover what you need to get started, like supplies, initial training, etc, it will not include working capital, which you will need until your business gains enough momentum to start turning some of its own positive cash flow. Before you buy in, make sure you know exactly what is and is not included in the cost. If you bought into a less expensive franchise because of your own financial constraints, unforeseen costs early on could be a make it or break it moment for your business before you’ve even had the chance to take off.

You will also need to make sure your personal expenses are covered for a few months, at least. If you’ve run the numbers, and you’re going to run out of your own funds after a month, it’s time to look into different options or wait until you’ve saved up a larger nest egg. Learning to budget in general is going to be key, but remember, it’s one thing to hold off on buying a new luxury car, it’s another to try to hold off on paying rent.

Depending on what the franchise provides, you may also want to have some extra cash set aside for things like sales and marketing. However, many franchises will include this as well. That’s why it’s important to understand exactly what you’re getting.

The good news is that when you’re buying into a franchise, you’re buying into a business that has been thoroughly tested. Your franchisor should be able to tell you exactly what to expect, your fellow franchisees will be a community you can draw tips and lessons from, and ongoing training is a great wait to develop your business as it grows and flourishes.

Lower cost franchises often fall into the sales or marketing industry because the marketplace is big, the startup costs are low, and the potential for growth is always there. This means you’ll probably want to be comfortable selling, talking on the phone, and working fairly independently. You may not even need to employ staff for awhile.

High Cost Franchises

Higher cost franchises get their cost because they usually require things like premises to operate, special equipment, branded decor, and more (a great example is a fitness club.) There’s a lot more training required for things like operational systems and the hiring, training, and development of your staff. The setup process also takes much longer.

Higher cost franchises usually need the help of bank loans and overdrafts, so that cost will need to be incorporated into your business plan. The good news is that with approved franchises, banks will often lend up to 70% of the total cost of setting up. Even better, these loans will usually come with repayment and interest rates that reflect the approval ratings of the franchisor, which means you get a great deal directly because of the prior success of the franchise you’ve just bought into.

One thing to keep in mind is that with more staff comes more managerial responsibilities. If you’re not the type of personality that enjoys managing or being responsible for the well-being and success of others, you might end up disliking a big part of your job.

Conclusion

With so many great franchise opportunities available, the biggest factor in predicting your success has more to do with finding the franchise that’s right for you. Be as candid with yourself as possible about your limitations, concerns, fears, and deal breakers. Weight your options carefully, and make a pro’s and con’s list (because there will be pro’s and con’s to every situation.) Take the time to find the right franchise for you.

The First 3 Questions You Should Ask Yourself to Determine if Franchising is Right For You

The First 3 Questions You Should Ask Yourself to Determine if Franchising is Right For You

So you’re interested in owning a business, but you don’t know if franchising is right for you. Franchises can be a great business to enter into because they operate under one successful trademark and can generally achieve more than what individual business people can. But the fact that franchises may have a better or quicker success rate than independent businesses is not the only factor you should consider when contemplating whether or not to buy into a franchise. Here’s a list of three key questions you should ask yourself before making your final decision:

1. Can you afford the franchise?

Before asking yourself any other question, ask yourself if you can realistically afford the startup costs of the franchise plus any further costs you accumulate before you hit profitability. Even though the franchisor can give you an idea of what the initial costs will be, actual costs always vary depending on the needs of the business. You need to have enough capital to not only open the franchise, but also run it until it is profitable and stable. For some businesses, this might take one year, for others more, and others less. So plan your finances as accurately as possible, ideally overestimating your expenses to limit your risk of under capitalization. This will greatly diminish your risk of failure.

2. Will you enjoy the franchise?

A lot of times, people may be interested in a franchise simply because of the potential capital they can generate. While a business’s success rate should be something you’re concerned with, it should not be the only reason you picked that franchise. Running a franchise is no easy task; it will undoubtedly pose many challenges, and you should anticipate working in it for the next 10-15 years (at least.) So if you’re planning on owning a franchise, make sure you’re interested in the industry and think you can enjoy the day-to-day work entailed in that specific business.

Aside from liking the particular industry, product, or service the franchise is involved in, also make sure you like the franchisor’s staff. These are the people you will be constantly contacting for support and advice, so make sure you feel comfortable working with them as you will be working with them for a long time. If the relationship sours, you could end up regretting your decision.

3. Does the franchisor and existing franchisees you are considering have a track record of success?

So you made sure you have the right amount of capital to invest in a franchise, and you picked out a franchise in an industry you are interested in, but did you research that particular franchise’s success rate? It is very important to do research, not only regarding the franchisor’s level of success, but also the individual franchisees record of success.

If the franchisor is successful but the franchisees seem to be going downhill, what does that mean? What if it’s the other way around? You want to make sure you invest in a franchise where the franchisor offers enough guidance and support to help your franchise soar. Obtaining this information can better help you project what your success rate will be and in the end, if your investment will be worth its value.

Conclusion

There are many other considerations that will go into your final decision, but these essential questions will help you determine if you’re ready to take the next steps towards becoming a franchisee.