There’s a lot that a prospective franchisee would need to think about before they commit to starting a franchise, and the fees involved are generally a very important part of the negotiation between a franchisee and a franchisor to determine whether you’d be willing to proceed. These are known as franchise fees, which consist of initial fees and ongoing fees among other costs that you would be required to pay as a franchisee.
Let’s dive in:
Initial fees
Your initial franchise fee is the cost to the franchisee which gives them rights to use the brand name within a specific territory, access to ongoing training and support from the franchisor, and in some cases an operating manual. This fee differs from brand to brand, accounting for as little as 5% of your total investment up to 40/50%. Larger percentages like these may seem intimidating, but that shouldn’t necessarily stop you from investing. This initial fee ranges from £500 to £300,000, and the price can be an indicator of the level of support you will receive from your franchise brand, which is invaluable to your success as a franchisee.
In addition to this, you’ll need support through the set-up process. With some brands, this could be as little as a van and the associated equipment required if you’re running a mobile franchise business. In others, like a fast food restaurant, the operation is much larger as you’d require cash for refurbishments, equipment and supplies.
Ongoing fees
Your ongoing fees are management services fees or royalty fees. This is where your franchisor will take a monthly flat fee or a percentage of your sales. On the surface, you may have some questions surrounding these, but it is usually an arrangement of great benefit to both franchisor and franchisee; the greater the level of success of your franchise business and the more money you make, the more support you’ll likely receive from your franchisor.
Other ongoing fees to consider are when you’re trying to promote and grow your franchise. Advertising fees are taken as a fixed percentage of a franchisees generated income and given to the franchisor, who place this money into a collective pot for promotional activity delivered by the franchisor brand. The franchisee should benefit from this activity and it takes away the additional responsibility from them, so they can focus on their day-to-day operations.
Is it feasible?
Determining whether your franchise opportunity is feasible is a vital part of your assessment on whether it is right for you. There are franchises available to cater to all different prospective business owner needs and their financial positions. Finance options are available out there to help you when you’re starting out, too, but products and eligibility criteria differ by lender. But if you’re thorough and honest in your assessment of the financial feasibility of each opportunity, you’re off to a great start.
Best of luck!
For more details on the advantages and disadvantages of buying a franchise, download our free franchising guide (part 1) here.
