There are so many aspects that go into choosing which franchise is the best fit for you. Chief among those concerns is the initial investment required to buy your first franchise location. If you have done some research on franchise costs -- including start-up costs and your franchise fee -- then you know that there is a huge gap between franchises with the smallest and the largest investments. The start-up costs for a new franchise can range from just a few thousand well into the millions.
For new franchise owners, it is not always clear why these large gaps exist. In this post, we will explore what your initial franchise investment goes towards and why some franchises that seem like a bargain may be too good to be true.
What is Included in Your Initial Investment?
There are different ways to look at your initial franchise investment. First, there are the capital requirements that a franchisor sets out for all potential franchise owners. This amount usually includes the investment for the franchise fee and setup costs, plus additional assets as working capital, which will serve to keep the business running up until the point that it becomes profitable. Every franchise, whether a home care franchise or other industry, will have different financial requirements, so be sure to speak directly to a franchise sales associate for the requirements of a specific franchise system.
When we talk about the initial franchise investment, we are going beyond the franchise fee, which is the cost paid directly to the franchisor for the use of the franchise system and related trademarks, etc.
Depending on the franchise, the initial franchise investment will include costs such as land, buildings, furniture, equipment, office supplies and in the case of retail franchises, inventory.
Why are Some Franchises So Much More Expensive?
There are some obvious reasons that one franchise might be more expensive than another. For instance, paying for the construction of a hotel franchise location is going to be considerably more expensive than a home care franchise that requires no construction. However, there are also key differences between different franchises that may not be quite so obvious.
Buying a franchise means buying more than just the name of a brand. Your initial franchise investment goes to cover both startup training as well as the cost of ongoing training for you and your staff. The extent of this training can have an impact on those initial investment costs. Caring Senior Service, for instance, offers ongoing training for its franchise owners. Other franchise opportunities may have training available upon purchase but might not offer ongoing training, which can be extremely valuable and have an impact on overall profitability.
Not all franchise territories are created equal. Some territories may leave you faced with steep competition while others may have little to no competition. Further, the geographic area sizes of different territories can be extremely different depending on how densely populated the region is. These territory differences can certainly have an impact on how much a new franchise owner will have to spend.
New vs. Additional Franchise
About 53% of franchise owners have more than one location. Many franchisors offer discounted rates for current franchise owners who are buying a new location. For happy and successful franchise owners, this can be a great savings option.
Getting residents and potential customers to know about your brand is one of the biggest struggles a new business faces. For a franchise owner, much of that struggle can be eliminated because of existing widespread brand recognition. The more recognizable a brand, the more leverage that company has in charging a higher franchise fee.
Of course, brand recognition is not always positive. Some brands have been around for so long that they have acquired as many negative associations as positive ones.
These are only a few of the reasons for the wide range of initial franchise investments you will find during your research. It is important to keep in mind that while you should be prepared for the cost of the franchise you choose, the initial price is not necessarily indicative of how successful your business will ultimately be.