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Financial Questions

The Franchise Fee In-Depth

When you sign an agreement with open a franchise, you’re probably going to be expected to pay a franchise fee. As you begin your search, learn the basics of franchise fees and prepare yourself for this necessary expenditure.

The nature of the franchise fee

The main thing that distinguishes the franchise fee from other payments you will make to the franchisor is that it is a one-time fixed fee. This is in contrast to other fees levied by the franchisor, such as royalty payments or advertising fees, which are generally recurring in nature and often calculated as a percentage.

Essentially, the franchise fee is like a membership fee for joining a club. It’s made when you first buy into a particular franchise system as a way to denote that you are now an authorized franchisee of this company. It gets you in the door, so to speak.

Also, while franchise fees are generally the same amount for all franchisees buying into the company, they vary drastically across industries and brands. For some simple service franchises, the franchise fee may only amount to a few thousand dollars. However, for more famous brands they can reach upwards of $100,000.

What you can expect to get in return for the franchise fee

The detailed explanation of what is covered by the franchise should be included somewhere in the franchise agreement, and actual specifics may differ depending upon the company. However, there are some standard elements of the franchise fee that you can expect any time you purchase a franchise.

Typically, paying the franchise fee allows you to use the franchisor’s brand and trademarks for the duration of the franchise agreement. Also, you will be allowed to use any proprietary processes and systems that make the company unique. These processes are often one of the most valuable parts of a franchise business.

Although it doesn’t apply in every case, many times the franchise fee will also give you access to special, pre-negotiated vendor pricing agreements, software platforms that are vital to running the business, equipment, and operational manuals. Sometimes, the franchise fee also helps to cover costs for your location’s grand opening event.

How is the amount of the franchise fee determined?

There is no set formula for determining the amount of a franchise fee, but in general, the more value the brand holds the higher the cost will be. Value, of course, is a qualitative attribute, but it often combines name recognition, built-in customer bases, the complexity of proprietary business systems, intellectual property, and more. The more of these qualities that the franchisor brings to the table, the more likely it is that they’ll be able to command a higher franchise fee.

Fitting the franchise fee into your budget

The franchise fee is only a small part of the total amount you are going to invest in a franchise business, but it can still have a significant impact in your choice of which company to partner with. Make sure that you research your options thoroughly so that you know what to expect, and assess how much you think you can afford to spend on a franchise fee as a part of your overall budget range.

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 1-850-366-2394.

financial questions

Key Financial Questions to Ask When Buying a Franchise

As you begin the process of researching potential franchises to buy, hundreds of questions are likely to be circulating in your head, many of them related to money. Here are several financial queries that you must absolutely ask before buying a franchise.

What’s the total investment I will be expected to make?

This is the question that really needs to be at the top of your list because it will immediately help you narrow down your list of franchises that are feasible options for you. Because you expect that your investment will eventually reap rewards, you may be tempted to justify expanding your budget to accommodate more expensive franchises than you had previously considered: don’t. Treat this experience like shopping for a house or a car. Set a maximum limit, and eliminate franchises that require you to make an investment that is beyond that amount.

How much cash is required?

It’s vital to know how much in liquid assets will be required by the franchisor early in the process because the answer can vary so significantly. In fact, the percentage of your investment that you must have in cash can range anywhere from 0% to 100%, depending on the franchise in question.

What do I receive for these costs?

You’re spending a significant amount of money to invest with the franchisor, so you deserve to know exactly what that money will yield you even before your company begins to earn revenue. For instance, does the franchise fee cover an on-site training period at the company headquarters? Are certain essential materials and equipment included in the start-up costs?

How are your royalty fees structured?

Royalty payments are something that almost every franchisee will have to deal with, but the types and structure can vary greatly from company to company. Some franchise companies levy an all-inclusive franchise royalty fee, while others split them up into different percentages to fund departments such as marketing, advertising, etc. Additionally, you will want to know how often each fee is assessed, and whether it is a fixed payment, percentage of sales, or another amount.

Are there any discounts or promotions available?

Many franchise companies, especially if they are part of larger networks, will offer specific discounts in order to attract potential franchisees. These may include discounts for qualified veterans, minorities, first-time franchisees, or those who are looking to open in a specific region.

Do you offer any assistance with financing?

Some franchisors may be able to work with preferred lenders to help you secure financing, while others will require you to navigate the process on your own.

When can I expect to reach my initial goals?

First, you need to decide on an initial goal. Whether it’s for the company to break even, reach a specific benchmark for growth, or hit a certain revenue target will depend on your specific type of business and situation. Then you need to ask the parent company how long it will likely take you to reach that goal, using specific examples provided by other units in the system.

How financially healthy is the parent company?

Many potential franchisees are concerned about the expected revenues and costs for their own location, but they forget to scrutinize the financial health of the corporate organization. Your franchisor is going to be your partner in this endeavor, so make sure they are financially stable enough to offer consistent support.

What are the lowest- and highest-performing franchises in operation?

Knowing this will help you get an idea of the best- and worst-case scenarios for owning this franchise. It will be even more informative if you can also see the low- and high-water financial results for the franchise units that closely resemble your target market.

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.

Service Franchising

What Makes A Successful Service Franchise Owner?

Many people dream of starting their own business, but not everyone has what it takes to succeed at owning a service franchise. Running your own company takes a diverse set of skills and the ability to respond with composure in myriad situations, but there are some specific traits and factors that will help you take your service franchise business to the next level.

Being self-motivated

If you find it difficult to be motivated to do work without constant reminders or being micromanaged, then owning a service franchise probably isn’t for you. If, however, you are the type of person who thrives on being a self-starter, then there’s a whole new world of work that’s available to you.

It will be hard work, but you’ll be doing it because you believe in it and because you want to share your expertise with your customers, not because a boss told you to be somewhere and do something at a specific time.

Having access to a strong network

One thing that makes being a business owner significantly easier is being able to rely on a network of friends, family, and community leaders when you need assistance. Your network can help you get involved with community events, forge partnerships, and help you out with word-of-mouth marketing in the area.

Also, there are going to be sometimes as a business owner where you just want to talk to somebody about the challenges you’re facing. If you have employees, they won’t really understand the unique demands of your position, and while your friends are always there for you, you might want the advice of someone in your position. Consider joining a local entrepreneurial organization or networking group, so that you can unwind from work occasionally with like-minded peers.

Being unafraid to take risks

Risk is a necessary part of franchise ownership, and it’s what makes the concept of entrepreneurship possible. If you want to succeed, you’re going to have to put yourself out there and trust that with hard work and preparation, everything with pay off in the end.

As a service franchise owner, you won’t have the luxury of falling back on a company full of people when things get tough. The ultimate rewards and consequences of decisions will fall squarely on your shoulders, which is why you have to be willing to take risks for the good of the company.

A desire to do whatever it takes for the company

As a service franchise owner, there’s no such thing as calling in sick. If something needs to get done and one of your employees can’t handle it, it’s up to you to keep everything in working order. Because of this, many people who love to perform real work are drawn to franchise ownership.

These types of people have no qualms about getting their hands dirty whenever necessary, and many of them have special skills that are useful in service businesses. If you’re this type of person and you want to put yourself on the path to becoming a “Blue Collar Millionaire,” then investing in a service franchise may be the perfect fit for 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.