People are aware of the initial cost involved during the start of a new business, but when it comes to franchising things are not quite the same. There are various types of investing involved in a franchise, and one must be aware of all these costs.
Depending on the kind of franchise you want to buy, you need to find answers to some questions on any offer you may find.
Is there any hidden cost?
Is there any capped rent?
Are there any upgrade costs?
Does it involve any support for franchisees?
Is there any unpaid loan on the business?
The franchise opportunities value can normally be categorized under the following five categories.
Initial Fee: Each franchise has a fixed initial fee that the buyer has to pay to the owner. Initial training, management, and support are covered under this initial fees. Potential franchisee offers various modes of payment and it might be possible to pay the fee in parts instead of paying the lump sum at once.
Setup cost: Many people have a miss conception that the installation cost is included in the initial fee, which is not the case. One must be prepared to pay for the setup or build cost apart from the initial fee that is required to make the shop front and purchase other office machines. You must not forget to include this factor in your franchise budget analysis.
Legal fee: When buying businesses for sale, there are various legal proceedings and contracts involved in the process which is beyond the handling of an average person. In such situations, you need to hire an experienced solicitor who will carry out all the legal requirements of the deal. It is advisable not to indulge in a franchise deal without the assistance from a qualified attorney.
Royalty fee: Many times people forget this part in the excitement of getting their hands on lucrative franchise opportunities. Purchasing a franchise means that the buyer is authorized to use the company's system and brand to do business. In return, the buyer has to pay some percentage of the profit earned every month or year as per the contract. This payment has to be made till you work under the company's brand.
Running capital: It's the most crucial part of the budget analysis. This is not a fee to be paid to anyone but comprises an important part of your business planning. One needs to have a cash reserve to have their business function on a daily basis. Without the backup of a proper running capital, a business will not make the desired profit and might also face unexpected financial problems in future. So, one should have good planning before heading with a franchise contract.