Understanding franchise fees
Through all of these media, you will see businesses advertising their franchise opportunities with details about the fees or cost of investment. However, not all fees are calculated in the same way, so how do you know what you are looking at? This page helps you better understand the different elements to consider when looking at franchise fees.
Fees on the bfa website
The bfa member directory on this website only lists two costs against its franchise opportunities:
- Typical total start-up cost
- Minimum personal investment
Typical total start-up cost
Each franchisee operation (in the same network) may have slightly different costs, so what you see here is a figure which is a typical start-up cost for a franchisee in the network. This is an equivalent of an average, which is rounded up to provide a realistic expectation. However, remember that this is an indicator, and business liabilities such as vehicles, staffing or property could mean that the actual cost of a specific franchise opportunity is noticeably more or less.
This fee will not include franchises which are resales (franchisee operations already being run by an existing franchisee), as purchasing already running franchisee operations (rather than a new site) would skew the costs depending on the success and potential of an existing business.
The typical total start-up fee will include the following, where the elements are applicable to the business:
- Franchise fee (the fee to use the brand and system etc)
- Any necessary equipment (stationery, machinery, office equipment etc)
- Any necessary initial stock
- Initial training
- Initial marketing or sales launch
- Any necessary property costs, including fittings (average)
- Any necessary vehicles (specified whether this is the total cost of the vehicle or the first repayment if on finance)
- Any necessary subscriptions/memberships/licences etc
- Any necessary staffing costs (average)
- Any other element for the initial launch of the business
This figure does not include:
- Working capital
Minimum personal investment
You may be able to cover the total start-up fee of a franchise purely from your own savings. However, in many cases a loan will make up part of the finance. When this is the case, most franchises will want you to contribute a minimum percentage of your own cash as part of the total finance. In many cases this will be stipulated by the bank anyway as part of their lending policies (most banks will require at least 30% of the total cost to be personal finance).
The figure you see here is the minimum amount that the franchise expects you to put forward as your own cash, so it doesn’t include any bank borrowing.
As some franchises will expect a minimum percentage (rather than just a minimum set amount) of the total start up cost, the figure you will see on the bfa site will be based on that percentage against the typical total start up cost. In most cases they would have also provided the percentage figure for your information.
Please also remember, that these figures are minimums, not averages, or typical figures.
Franchise fees advertised in other media
As you see from the above, the bfa has been quite specific about how franchise costs are represented on this website. In other media outlets there may not be such precise guidelines, if there are any at all.
For example, you may find two very similar businesses with very different start-up costs. This may be because one is taking a much higher fee; it may be that one has extra equipment or vehicles you weren’t aware of; or it may be that one has provided the costs including the initial repayment of a vehicle, whereas the other has provided the total repayment cost of the vehicle.
What this means to you is that you need to be very careful about comparing costs when you don’t fully understand what lies behind them. Don’t write anything off from the costs alone - and don’t commit to an franchise opportunity on that basis either. Do your research in full, ask lots of questions and get the full measure of the business.