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investment

Service Franchise = Lower Investment Cost

Opening any type of franchise comes with myriad different associated costs, but the total amount you spend to open and operate the business can vary wildly depending upon the specific circumstances. One of the most important factors that will determine how much you end up investing in the franchise is whether you choose to open a brick-and-mortar (also referred to as retail) franchise or a service franchise.

Upfront franchise fees

Many times, although not in all cases, upfront and annual franchise fees will be lower for service businesses than they will be for retail franchises. To understand why that is the case, it helps to break down the concept of franchise fees by what you are actually paying for. There is, of course, relationships with global suppliers and pre-negotiated price agreements, access to patented operational processes, potential corporate legal assistance in the event of disputes, etc. But by and large, the bulk of franchise costs are determined by the power and recognition that the parent brand has with the public, and how important that brand identity is to the company’s ultimate success.

For restaurants and retail franchises, this brand recognition is usually what gets people in the door. That’s what often makes franchise costs for these businesses significantly higher when compared with the average service franchise. That’s not to say that brand identity isn’t important to service franchises, only that consumers tend to have stronger brand relationships with businesses that sell tangible goods.

Real estate concerns

The old real estate adage, “Location, location, location,” doesn’t just apply when you’re trying to buy or sell a home in a hot market; it has a major impact on costs for business as well. For many brick-and-mortar franchises, the physical location of their store is one of the most important determining factors in the amount of revenue they will earn. These types of companies often rely heavily on foot traffic, benefit from being near other commercial properties where their customers will be running errands, or receive a steady base of visitors due to being located near an important residential hub. These locations are typically very attractive in the market, and franchise businesses usually pay the price in the form of higher leases.

Service franchises, on the other hand, typically don’t suffer as much from being located in a less prime location. Many service companies operate without having any customers ever walk through the door, and therefore the location of the actual office is a low-level concern. Others get the bulk of their visitors from customers with appointments and don’t have to worry about making money off impulse visits. in any case, you can usually lease office space for your service franchise in a less expensive area and still be successful.

Operating costs and inventory

Owners love to open retail franchise businesses because the market for physical products is vast and diverse. Physical products also cost money, both to manufacture and to house. Retail franchise owners learn to deal with operating and inventory costs because they don’t have a choice, but in many cases, it has a dramatic effect on their operating margins.

Meanwhile, service businesses generally don’t have to pay for equipment that is used in manufacturing processes, the material used to produce the products or wages for the people who do the manufacturing. They have to make sure that office supplies are stocked and that any tools necessary to complete the services (both digital and analog) are in good working order, but the cost commitment is generally much lower when compared with brick-and-mortar franchises.

Next Steps

If you’re considering a franchise investment or just have questions, feel free to contact one of our franchise specialists to learn more about the process and all the different franchise opportunities by completing our request form or calling 1-877-650-5551.

Year 1 Franchise

What to Expect in Year 1 of Franchise Ownership

The first anniversary of franchise ownership is a major milestone for any new franchisee. The lessons resulting from a year of experience, if acknowledged and documented, can serve as a guide for the future. Each business is different, each location is different, so the ebbs and flows of each franchise are unique. While it’s impossible for anyone to know exactly what to expect in the first year of franchise ownership, some things are standard.

The franchise fee affords owners certain rights and benefits, one of which is extensive training. Oftentimes this training will take place on the premises of another franchise location. This experience is one of the most valuable a new franchise owner can possibly have. They gain hands-on experience that will allow them to hit the ground running at the time of their grand opening.  Plus, they have the opportunity to forge a working relationship with a fellow owner who may be able to offer insight and support down the line.

It should go without saying, but regardless of the business type, the first year of franchise ownership will undoubtedly involve expenses. While perusing franchise opportunities, it’s easy for someone to become fixated on the franchise fee and forget the other expenses that accompany franchise ownership.  Before making a major commitment, it’s important to calculate all foreseeable expenses such as insurance, lease payments, marketing contributions, plus a contingency fund to help someone decide which franchise fits their budget.

Depending on the type of business, fluctuations can be expected. Some make the majority of their annual profits during the holidays or over the summer months.  Once a franchise has been open for a calendar year, it’s important to note these highs and lows to better plan for the future in terms of inventory, staffing, and hours of operation. If the business owner is unfamiliar with their local community, year one will serve as an introductory period that identifies events which may have a bearing on sales and staffing requirements as well.

Three occurrences are almost a given, and they are: hiring, firing, and quitting. It is highly unlikely that the entire staff present at the grand opening will still be under employ one year later. Choosing the staff that the business opens with will make a lasting impression on all new customers. Weak employees who are not dependable or trustworthy cannot remain with the company, the risk is too great. While some franchises can offer long term career opportunities, others are viewed by employees as waiting rooms until a better opportunity comes along. It’s important to maintain a pool of applicants to serve as replacements in the event of turnover.

The most important thing any franchise business owner can expect in the first year is uncertainty. By preparing for anything and everything, a business owner will be less susceptible to risks and adversity.

Next Steps

If you’re considering a franchise investment or just have questions, feel free to contact one of our franchise specialists to learn more about the process and all the different franchise opportunities by completing our request form or calling 1-877-650-5551.

franchise investment

Understanding The Franchise Investment Path

You’ve found a franchise that you could imagine yourself running.  You’ve envisioned yourself passing along your business card with the word “owner” nestled beneath your name. You may have even spent time in the mirror where you practice saying, “Why yes, this is my business.” After all, practice makes perfect. But before you submit your request for consideration to the company of your choice, you’ll need to count some Benjamins…

As a potential franchisee, it’s important to consider how much you’ve got, how much you’ll have to give upfront, and how much your franchisor will get as time goes on.

Know your worth, your net worth that is. Using a balance sheet, make a list of all your assets: checking accounts, savings accounts, real estate, automobiles, stocks, bonds, any mint-condition Beanie Babies you may have acquired in the late nineties, and of course cash on hand. Next subtract your liabilities, meaning everything you owe or pay: mortgages, bills, and outstanding loans of any kind (student, automotive, or otherwise). The number you’re left with is your net worth. Now identify your liquid capital. This refers to your assets that are readily available to start your business such as CDs, cash, stocks, or bonds. A franchise will have a minimum requirement for liquid capital and/or net worth. Why? These financial statements serve as proof that you can get a franchise off the ground.

Decide whether or not you can afford the franchise fee and investment.  The franchise fee varies greatly depending on what industry you’re getting into. Some fees are as little as five-thousand dollars where others may be in the neighborhood of one-million dollars. You have to decide what works for you. Look at your franchise fee as membership dues that all franchise business owners pay to get their businesses off the ground. This one-time payment often includes training, support, and guidance regarding the physical location of your business. It is enormously important that understand exactly what your franchise fee entitles you to so read all of the fine print. (Twice if need be.) Your investment represents what the company believes it will cost you to get the business started. Costs may include rent, hiring costs, supplies, inventory, insurance, and more depending on the type of business you’re opening. While it’s in the company’s best interest to accurately depict how much your initial and ongoing financial contributions will be, it’s in your best interest to get a second opinion, and third, and fourth. Utilize online message boards. Since they’re anonymous, you’ll get insight you wouldn’t otherwise get from an employee who may think twice about sharing one-off incidents of money pit-itis.

On going, going, going, royalty fees.  Long after your franchise fee and investment costs are paid, you will still be required to pay royalty fees. This is the percentage of your gross profits (before any deductions are made) that will go back to your franchisor as long as you own your business or until a zombie apocalypse, whichever comes first. Before you balk and say, “But this is my money!” remember that a great deal of your success stems from the fact that the business you are running is in fact a franchise. You were provided with a proven model and method to achieve business success. In some instances, additional royalties for profit-generating initiatives such as marketing and advertising are collected. (Those celebrity endorsements and Super Bowl advertisements aren’t going to pay for themselves.)

In summary, you have to know your wealth before you grow your wealth. The franchise you chose to invest in is designed to help you succeed.  Help yourself by accurately detailing your financial status and choosing the franchise that best suits you.

Next Steps

If you’re considering a franchise investment or just have questions, feel free to contact one of our franchise specialists to learn more about the process and all the different franchise opportunities by completing our request form or calling 1-877-650-5551.