Would you like to purchase a low cost franchise?

Richard Pakey discusses how to join the world of franchising with a restricted budget

Would you like to purchase a low cost franchise?

Whatever the size of your budget, there are usually options for purchasing a franchise. Firstly, you need to receive solid advice. And this should happen on any sized budget. Never make an important decision without seeking professional judgement at the beginning of a process.

There are numerous franchise options available for anyone with a limited budget. Depending on license or franchise fees, and taking into account the various investment levels that exist, this could range from anything up to £30,000. This may not cover the total investment required, but we will elaborate on this later in the article.

With low-cost franchise fees of up to £25,000, you may be able to secure a Government-backed loan. You may also be able to obtain a loan that covers a large percentage of your initial outlay. Although grants are not available, low interest loans do exist. This could mean paying out a few hundred pounds each month to cover a £15,000 franchise fee.

If there are two people joining forces in such a venture, you may be able to attract a loan of £50,000 – that’s £25k per applicant. This could be useful if looking to gain funds to act as working capital. Whatever method you choose, there is always plenty of support available to guide you through the procedure.

But does low cost mean low income? No it doesn’t. Franchise fees vary in size and so do the funds needed to get a business off the ground. In some cases new business partners will have to find the funds to purchase equipment, or stock, or rent a property, or buy a mobile unit, or a vehicle or a combination of these.

You may be able to start up on your own from your house, or you may need to employ staff from day one. The total investment required may be a lot more than the advertised franchise fee. In many cases, the franchise fee represents a relatively small percentage of the initial outlay.

Quite often, franchisors offer relatively low fees because of the additional investment required. Many low franchise fees can generate strong profits from the start. But, overall, no one size fits all. You must do your homework whatever route you decide to take and, almost inevitably, all new franchisees will require additional working capital from the beginning.

If you can discover a business that enables you to work from home, then this may be the best option for a first-time franchisee with a low budget. Home working has certainly become more popular recently, with franchisors doing their best to help potential new franchisees – by not marking-up or increasing fees.

This generally means that franchise fees will cover initial training, on-going support, and perhaps some marketing assistance too. And since Covid, fees have tended to remain low in order to attract new business partners.

But where does the search for the ideal business start? First, why not consult a franchise directory that lists dozens and dozens of options. Try not to look at everything in the directory, because this may totally confuse you. It is usually best to focus on a few key points.

What type of business interests you? What is your preferred location? Check out investment levels. There is little point investigating a franchise that requires an initial outlay of hundreds of thousands of pounds, when your budget is restricted.

There are many different ways to seek a loan for your new venture. In days gone by, many budding franchisees would simply speak to their own local bank manager. They probably knew each other well and were on first name terms.

However, the options are far greater nowadays. You can search online, where your credit history will be investigated. Quite often you may be able to track down an unsecured loan which, in some circumstances, you might find advantageous.

Whatever happens, you will be advised to seek help from a specialist lender or broker. These companies have insider knowledge of franchise costs and will be able to advise you on the best type of finance facility for your business and current financial position. Quite often your loan will be spread across multiple lenders, in order to offer you a preferential rate.

And, on many occasions, the franchisor will have their own contacts and relationships with lenders, brokers and banks. Franchisors are usually happy to assist you every step of the way. Most professional advisors in the franchise sector will help you to find the best deal, so don’t feel overawed by the experience.

Richard Pakey
Richard Pakey