Why a franchise? If you’re considering franchise ownership you already know the answer. A franchise is an established brand. The concept is already proven, there’s an established customer base, operating procedures are laid out and functional, etc. There are costs and drawbacks to franchise ownership that you wouldn’t incur if you have your own unique small business, but for some business owners those costs and drawbacks are outweighed by the benefits of becoming a franchisee.
If you think franchise ownership is the right path for you – your first major question will be should you buy or should you build?
Here are some things to consider:
If you build out a new franchise location?
The first cost you will incur will likely be the franchise fee. Franchise companies charge this upfront fee as a way of recouping the costs of branding, training and the support they will provide. The average franchise fee is somewhere in the neighborhood of $30,000, but they can range from less than $10,000 to over $100,000. The franchise fee will depend on the size of the franchise you are buying into, and each individual franchise will have specific requirements to become part of the brand.
There will also be costs related to setting up a location. You will likely have to build out, furnish and equip a space while fulfilling franchise requirements. There will be costs associated with licensing and permitting. You may have to purchase a commercial property – or if you are going into a commercial space as a tenant, there will be costs associated with taking over the space, like rent and deposits.
Any new business will also need to bring in initial inventory and purchase supplies. There may also be operational costs like advertising and payroll, so you will need to be certain that after all the initial expenses of your build out are covered, there is still enough capital left to cover you until you are able to turn a profit.
If you buy an existing franchise location?
Buying an existing franchise location can be a great option for those who are looking to own their own business but don’t want to risk the massive amount of capital it takes to start a new location (without knowing if that location will be successful).
You will still need to meet the qualifications required of the particular franchise you are looking to buy, and there will be fees associated with becoming a franchisee. These fees and requirements will vary, so ask you business broker for the range of fees associated with a specific franchise. The benefit of buying an existing location is you will remove the additional costs of a build-out, initial inventory and permitting fees. You will also remove a good deal of the risk associated with starting a new franchise in an unproven location, as an existing location has the numbers to prove it has been successful.
Which path is right for you? It depends on the amount of capital you have available and the level of risk you are willing to incur. Talk to your business broker about your options and they will be able to help guide you on the best path for you.
Does buying a franchise seem like the right path for you, but you have additional questions? Do you have more questions about franchisee requirements? Ask us! Leave a question or comment here and we will be happy to help.