In the current economic climate, a lot of people are having to now rely on themselves to secure their own financial futures. The governments, corporations and banks can no longer be relied upon to provide economic stability, jobs or financial security.

The onus now falls to you and me to secure our own futures and those of our families.

With this is mind, many will look to start their own business. Many will be inexperienced or have never run a business of their own before. In uncertain economic times, nobody wants to get it wrong!

A franchise offers a ‘ready-made’ business model that any prospective entrepreneur can take advantage of. However, the world of the franchisee is littered with rules and regulations, and can be a nightmare for the newbie to navigate.

So, how about we go through some of the different types of franchise opportunities that are available and their associated costs?

Well, the first thing that you will no doubt have noticed is that every kind of franchise comes with some kind of cost or upfront fees. This is true in pretty much any business you can name; “it takes money to make money”, as they say.

Depending on the type of franchise, the way that the costs or fees are worked out can vary. One this is for certain though; the fees and costs can be very large and should be looked at carefully against how quickly you will be able to make that money back, or ‘break even’. Many will know this as the return on investment, and it this that should be the major consideration before you decide which business opportunity is right for you.

What Is A Franchise Anyway?

A franchise is essentially like a rented license that allows you to use a ‘ready made’ business that will usually include the right to use the brand, the trademarks and to sell products or services that are particular to that business. In return, you as the franchisee will pay the franchisor a ‘royalty’ or fees which will have been agreed at the outset.

Most franchises will have started out life as independent businesses. The owners of these businesses (franchisors) will have decided to expand their business, and rather than shoulder all of the cost of expansion themselves, offer other people (franchisees) the opportunity to use this existing brand and business model for their own business.

There are some very well known brands that have expanded through the franchise model, such as KFC® or McDonalds®. The bigger the brand, and the more well established the business model, the more you are likely to pay for the franchise.

When a potential business owner has agreed to purchase a franchise, and the terms of the franchise have been agreed (although for very well established brands, such as those I’ve already mentioned, the terms of the franchise are pretty much laid out and not up for negotiation), a franchise agreement is drawn up which details such things as how the business owner must run the business, including products and services that must be offered, marketing strategies that must be adhered to etc.

What Kinds of Business Franchise Opportunities are Available?

There are numerous different types of business franchise opportunities from a wide variety of different industries, but there are some industries that prove to be more popular as a franchise model, which I have listed below:

• Fast Food Restaurant
• Retail
• Cleaning Services
• Automotive Repair & Services
• Mobile Trade Services
• Home Based Business

Ok, So What About Business Franchise Costs?

Well, as I’ve already mentioned, the bigger and more recognised the brand is, the more you will pay for the franchise. This is probably the biggest factor influencing cost, aside from the type of business that you want to run. Fast food restaurants are ten-a-penny but a well recognised brand such as McDonald’s® or Burger King® is going to cost you. Of course, the cost should also be set against the opportunity that it represents, so expect to pay more where the opportunity is very lucrative, but always do your homework and make sure that the opportunity is big enough to justify the costs. The sort of costs that you may expect to pay are included below, and will form part of your franchise agreement:

• Franchise purchase costs (start-up fee)
• Gross profit royalties (normally a percentage of gross profit)
• Turnover royalties (percentage of total sales)
• Marketing fees
• Administration costs
• Training costs
• Legal advice & costs

If your business needs to hold stock, you may also be required to hold minimum levels, which will also be an additional cost. You may be required to purchase product from specific suppliers, such as with some fast food franchises where uniformity of product is a requirement of the brand. You wouldn’t expect to go into a McDonald’s® and buy a Whopper® or for the menu to be different in each restaurant. You may also be required to purchase specific specialised equipment.

These are only the costs that are specific to the franchise, and do not take into account the sort of costs that any business, franchised or independent, would be expected to shoulder such as liability insurance.

So If A Business Franchise Costs So Much, What’s The Advantage?

Well, as with all things, the disadvantages have to be weighed against the advantages. In the case of a franchise, you have to look at the costs in the context of the opportunity that is being purchased. For example, a McDonald’s® franchise, despite being right at the top end of the cost scale, will also represent an opportunity of similar proportions with a return on investment that is almost guaranteed.

Opportunities like this are more often the exception than the rule, and careful consideration should be made as to whether you are likely to make your money back, and how quickly you will see that return on your investment.

A franchise does offer some key advantages, that you would not get immediately from starting an independent business. You could look at it like buying yourself a ‘head start’ in business, although it can never guarantee success:

• Established brand recognition
• Widespread marketing campaigns – either nationally or internationally
• Standardised system and processes
• Training

As with any business, you should do your due diligence. Just because a franchise has worked elsewhere, doesn’t mean it will work everywhere. Make sure you’re going to be in the right area and that the demographics of your marketplace are right for the product or service you are offering. Do not neglect the business plan, and ensure that you’re able to realise a decent return on your investment. A franchise is a long term agreement that you shouldn’t jump into lightly without good careful consideration and understanding of exactly what is involved in that particular business. Do not be afraid to move on to something else if you have any doubts about the viability of the franchise business you’re considering.