Investing in a business is a great way to make a profit. And what’s so great about it is that you don’t have to bother with launching a startup when you can buy a franchise. The way running a franchise works is that you operate under an existing brand’s name and sell their product or service. If you decide to invest in the idea of running a franchise business, you need to be aware of the costs that come with it. That being said, let’s take a closer look at 5 possible costs to consider when investing in a franchise.
Franchise fee
The first thing you need to do when investing in a franchise is to pay a franchise fee to the franchisor. By doing that, you get a permit to operate under the franchisor’s name and sell their product or service. The amount of money you need when buying a franchise heavily depends on how big franchisor’s brand is. Obviously, if you’re buying a franchise from a world-known brand, you’re going to need a lot more money than you’d need when buying a franchise from a home-based or mobile company. It’s also important to mention that the franchise fee usually covers the costs of training and site selection.
Legal fees
Obviously, buying a franchise means there are going to be legal fees you’re supposed to cover. It’s very important that you cover all of these fees as quickly as possible and focus on your core tasks. However, there are some legal fees that require more attention as you’ll have to cover them in the future as well. One such fee is the franchise tax which corporations and organizations are charged based on the capital held or net worth of the entity. Moreover, don’t forget that the franchise you’ve invested in is going to need legal representation. Similarly, it’s going to need someone who’ll run the company’s books.
Location
Of course, one of the most important aspects of running a business is location. If you want your investment to make you profit, you need to make sure the company is located at the right place. In most cases, the franchisor will need to approve the location you’ve opted for. Once the location has been chosen, it’s time to start investing in things such as equipment, furniture, and signage. Even though these costs may not seem huge, they can seriously disrupt your budget. When investing in home-based franchise location costs are non-existent but you’ll have to cover software fees and buy PCs or other electronics.
Supplies
We mentioned above that in order to be able to run a franchise business you need to pay a franchise fee. However, even once you do this, it’s still necessary that you invest money in your company’s core operations. One of the things you need to pay some extra attention is supplies. Let’s say you’ve bought a food franchise and you’re selling your product in small plastic utensils. You need to make sure your company has enough money to buy those plastic utensils on a daily basis. The good thing about this is that the franchisor will usually be able to provide you with a list of supplies you need for your day-to-day operations.
Travel
Another important thing to have in mind that while getting the necessary training for running your franchise, you’ll need to do a lot of traveling. This is especially the case when investing in a foreign-based franchise. Most of the training takes place in the city your franchisor’s company is based in and usually, you’ll be in responsible for covering your traveling expenses. Bear in mind that it’s not only you but also your employees who’ll need to get training before the company you’ve invested in actually starts operating. In fact, most franchisors require you to have at least one employee attend and complete the necessary training with you.
There are risks to every investment. The good thing about investing in a franchise business is that it’s you who plays an important role in how well that investment is going to turn out. The more time and effort you put into running your franchise the more likely you’ll be to make a profit.
