When you are thinking about investing in a franchise, one of the first thing you need to consider is how much you can really afford to invest. The amount you should invest can best be answered by understanding your own finances and how franchising works.
You pay a fee to enter into a contract with a business owner (called a franchiser) who has agreed that you can use their trademarks, products, systems, processes, and so forth. You’re considered an independent operator but you still must follow the rules and regulations that you agreed to in the contract. This means that in some ways, you’ve bought yourself a job and your pay is dependent upon how well you perform.
Costs Involved in Investing in a Franchise
- Accountant fees
- Advertising and marketing fees
- Build-out fees
- Business licenses
- Grand opening expenses
- Initial advertising and marketing expenses
- Legal fees
- Product costs
- The franchise fee
- And more
Each type of franchise opportunity will have different fees involved, which may be more or less than these. You’ll need to pick a franchise before you know all that’s involved. But it’s good to have a list of possible expenses. As you do your research, you can add to the list.
The thing to remember about investing in a business is that there are going to be a lot of expenses that you didn’t prepare for, so you need to have a fund to help pay for those expenses. As to how much you can afford to invest, it honestly depends on whether you can lose your money and still live okay. Because when you invest in a business, there is a chance of failure.
However, if you have enough funds to see you through until profitable, most popular franchises have more of a success rate than self-started business ideas. The reason is that you can follow the success of someone who did it before you. You have all the failures, the problems, the kinks, all worked out. If you follow the plan, you’ll do fine. But, you do need to make sure you have plenty of liquid cash.
Most franchisors will check you out financially to ensure that you have enough money to accomplish your goals before approving your ability to buy a franchise. That isn’t always the case, though, so be careful about lesser-known franchises that don’t have a lot of franchisees or a track record that you can trace.
You should invest in a franchise the exact amount of money it takes to make your business a success. It really is that easy. If you don’t have enough money to see it through until profitability, you need to either pick a different opportunity or you need to keep saving money or find funding so that you can accomplish your goals.