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If your business is operating successfully and you have plans for expansion, franchising offers a unique opportunity to increase your brand’s reach. However, one of the first considerations is the cost of franchising your business. There is no one-size-fits-all formula. Instead, franchising involves a mosaic of investments. This article will break down the costs associated with franchisors setting up a new franchise.
Franchising Costs
There is no one-stop shop that sells a package you can purchase and immediately franchise your business. Instead, to set in place all of the necessary steps to start your franchising journey, you must invest in various areas. These include:
- legal advice;
- marketing the franchise opportunity; and
- creating and providing a franchisee training program.
Legal Advice
Legal advice may be one of the most significant but important investments you make at the beginning of your franchising journey. You need a legally sound foundation to set your franchise network up for success. A legally sound franchise starts with well-written legal documents that protect you and your franchisees. These include the legally binding franchise agreement and the franchise disclosure document. You or your lawyer must properly draft these documents to mitigate the risk of future legal implications.
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Creating a Franchise Package
You will need to create a package you can provide to new franchisees that explains everything they need to know about the franchise opportunity. This package should include a detailed operations manual. The manual should share the knowledge you have about your business with your franchisee and include information about aspects such as:
- business procedures;
- operating systems; and
- recruitment processes.
The franchise package you develop will also include a program of initial training. Consider whether you plan to provide this training yourself or if you will outsource the training to a specialist or in-house training team. The option you choose for training delivery can increase or decrease your development costs.
Recruiting Franchisees
To recruit franchisees, you need to advertise the franchise opportunity. Recruitment is a significant step in establishing your franchise network. You will need to market and promote the franchise opportunity to prospective franchisees. The format in which you advertise can impact your recruitment costs. You may want to:
- advertise through word-of-mouth;
- advertise using online sites; or
- use a recruitment service.
Consider the time investment at the recruitment stage. Business owners understand that time is money more than anyone else. The time you spend interacting with candidates, interviewing, and conducting research into prospective franchisees comes at a cost.
Discover the key legal and commercial issues to consider when buying a franchise.
Remember, at this stage, it is your responsibility as the franchisor to conduct due diligence and ensure all new franchisees are suitable for the role. The management and behaviour of your franchisees can significantly impact your brand’s reputation. You want franchisees who will dedicate themselves to the success of their units.
Regular Revenue
In addition to the initial cost for new franchisors, you should continually invest in developing your brand and supporting your franchisees. You can consider both long and short-term expenses when calculating franchise fees.
Franchisors tend to charge franchisees an initial fee to set up their business and then charge monthly payments on an ongoing basis. Therefore, once your franchise network is operational and you have franchisees working under the umbrella of your established brand, you should earn a consistent income. Remember that a legally sound and solid foundation for your franchise network is the best way to secure success.
Key Takeaways
Franchising offers a compelling opportunity for expansion. Understanding the associated costs for new franchisors is crucial to prepare and avoid surprises. Areas you will likely need to invest in include:
- legal advice;
- creating a comprehensive package to onboard new franchisees; and
- franchisee recruitment.
The amount you spend at the initial stages of your franchising journey can depend on the complexity of your business. For example, the industry you operate in may mean you need to invest more to access expert advisors to satisfy industry regulations.
For some, franchising can be a lucrative business venture ensuring a regular income. It is vital to assess whether your business is franchisable, calculate the costs associated with franchising, and ensure that you continue to innovate and develop your brand to keep up with the ever-evolving marketplace.
If you would like legal advice about franchising your business, LegalVision’s experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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