There are several factors that have to be looked at when obtaining a franchise. The product, the market, size, location and franchise cost are some of the variables that determine the type of franchise business that you want to venture in.
The cost of franchise is one of the most important, usually a fee has to be paid and the amount not less than $20,000. However, the fee may be lower for small businesses and home based franchises, while it could be as high as $100,000 for big businesses. In case you are operating a franchise with a popular brand, then normally the franchiser will stipulate various financial requirements. Franchise cost for recognizable brand names is quite high. One has to have a predetermined amount of capital and liquidity funds to enable him or her fund the expenses incurred. The franchiser will provide the estimate of working capital for about 3 years till the business has set good ground.
Other costs may include legal fees, insurance cover fees, operating license fee and accounting. Others included in the start-up expenditure include employee training, payroll and equipment. The franchiser in most cases is the one who offers the training either from the headquarters or the location. For some businesses, costs involved in promotions, lease improvements, signs, rents and landscaping have to be taken into account. Remember that high start up fee does not necessarily translate to high returns. It may take about two years before the initial cost is recovered.
Royalties to the franchiser are also included in the franchise cost, probably about 4 percent of the total revenue. It is important to analyze the disclosure document from the franchiser before you decide on the franchise. All the fees are usually outlined in the document. Make sure that you understand all the start up costs, non-refundable fees and any other included in the document.
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