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What does it really cost to get into a franchise?

This is a great question, because the headline figures that you see in advertisements for franchises, often don’t tell the whole story.

In my experience, most prospective franchisees want to know how much cash they will need to acquire and launch a franchise successfully; in one sense the ways in which their funds are spent isn’t relevant – if they can afford, say, the franchise fee, but have insufficient working capital, they are still likely to fail.

The major elements of investment are:

1. The initial franchise fee

This should include your licence fee, initial training, launch materials etc.

2. Infrastructure costs

For example fitting out costs if a retail concept, or printing machinery if a printing franchise.

3. Stock

If any is required. This will depend very much on the type of franchise you choose.

4. Working capital

This will be required not only to pay you something to live on, but also to cover all other initial outlays (as per your budget), prior to the business becoming cash positive.

The figures quoted in advertisements often don’t make it clear whether they refer to the total investment or just part of it (eg the franchise fee) – so its important that you clarify this point at an early stage.

Don’t Forget…

The other major factor relates to third party funding; most of the High Street banks are supportive of franchising, and will often provide upto 70% of the total funding required to launch a franchise – which means that if you have, say, £30K in cash, you could afford to look at concepts requiring £100K to launch.

But you should remember that the banks are not in the risk business, and apart from checking out the concept, and your commercial acumen, they will also want security for their loan. You will need to decide what security you are prepared to make available to the bank – their point being that if you are unwilling to put some of your assets on the line, why would you expect them to back you – you need to demonstrate your belief in your ability to succeed.