What is the cost of a franchise?
There is no set cost for buying a franchise. All franchises are different and so it makes sense that the cost of a franchise varies between franchises.
The franchise cost depends on a number of factors including:
- How established the franchise is - you will pay more to buy a McDonalds franchise or a Domino’s franchise than e.g. a new franchise that has came on to the market.
- The size of the territory – are you buying the rights to operate in one city, or a town or a county, or may be the whole of Ireland (ie. a master franchise opportunity)
- The type of franchise - if you are buying a retail franchise or one that requires premises then you will pay more than one that is home-based or mobile.
- The equipment required – if buying e.g. a retail franchise, you will be required to purchase more sophisticated equipment than what you would need to buy if working from home; you sometimes only need a phone and a laptop!
- What the franchisor is offering – the rule is that the more a franchisor gives you, the more it will cost you. Some franchisors will offer national marketing campaigns, dedicated support teams and development agents to be at your beckon call, national conferences, telesales and customer service teams to help generate sales for you and help with any problems you have, and so on. You need to check that you are getting what you paid for.
- The number of franchise units you are buying – though initially you may buy one franchise, over time the franchisor may expect you to buy multiple franchise units from them, known as multi-unit franchising. This is common practice in many of the big food franchises. The franchisor may give you the option to expand if you want whereas some franchises will only recruit you if you have the potential and money to run more than one franchise.
Can you afford the franchise?
Some franchises can cost a few thousand Euros, whilst others can cost a few hundred thousand plus Euros!
You should always ask the franchisor what the average cost of starting one of their franchises is i.e. include all costs that allow the business to be up and running from day. Don’t be fobbed of by the “franchise fee is so much and on top of that you will need to pay for other services or equipment” as you need to know the full cost not just the franchisee fee.
You need to also make sure that you also ask what working capital is required. It is all good and well having the investment but how much money do you need to keep the business operating on a daily, weekly or monthly basis. And ask the franchisor how long they expect you to need to provide working capital for i.e. when will the business start making money.
Do not put all your money into paying for the franchise and leave yourself short of paying for the monthly expenses. A good rule of thumb is to have enough working capital for one year.
If you cannot afford the working capital, then you cannot afford the franchise.