Taking a deep dive into lucrative business ventures
Taking the leap into small business ownership is a big commitment. Fortunately, franchise ownership is essentially the same as small business ownership, without starting from the ground up. Small business and franchise ownership both entail a lot of research and smart planning when it comes to financing and financial responsibility. Find out all you need to know about the financial responsibilities of owning a small business franchise and how to venture more into this lucrative field.
The most important financial step to becoming a franchisee is meeting the start-up costs dictated by the franchisor. These costs are commonly called the ‘franchise fee’, and they are primarily determined by a capital investment scale established by the corporation you wish to franchise under. Capital investment is essentially how profitable the business is, or the franchisor predicts it to be. This initial, flat fee for joining with the franchisor starts close to $2,000 and increases from there.
The franchisor you work with will notify you of this fee prior to signing the franchise agreement, as the total amount will be due upon signing. Not only does this important start-up cost cover the fee of joining; it also pays for any training involved for you or your employees. These costs may be expensive, but they serve as an investment into your new business venture. Whether you’re interested in selling cellular plans or venturing into the restaurant world with Checkers & Rally’s Franchising, paying the start-up costs is the first step in owning your very own small business.
Once the franchise fee is paid, you’ll also need to think about any operational costs that will occur on a daily basis. As with any small business, you’re responsible for anything you need to upkeep your business, including finding and renting a space for your business, paying for any equipment fees or mechanical breakdowns, and advertising efforts. Additionally, you’ll be in charge of hiring and paying employees, ordering supplies, resolving discrepancies with inventory or payments, and meeting the needs of your customers.
Leasing Your Space
Be sure to stay up to date on all leasing terms, agreements, and fees. It’s your responsibility to find a space that has adequate room for your business needs, so some renovation may be required. Check with the landlord to see how to proceed with demo or renovations for the space. Rental fees are set by the landlord and sometimes include additional requirements like leasehold improvements, monthly rental charges, and a security deposit. An allowance for leasehold improvements may also be given to assist you in maintaining the property.
Equipment and Signage
Depending on the type of business you pursue, equipment costs will factor into how much you’ll spend on a yearly basis. Some equipment requires renting or financing, so you may have monthly, long-term payments on equipment purchases. If a piece of equipment breaks down, you’ll be responsible for any fees to get it fixed. Ask your bank for information regarding personal or business loans to purchase expensive equipment, since it also serves as a type of collateral. This also applies to any business signage you’ll need. Your franchisor will provide options for signage packages, as well.
The franchise fee isn’t the only payment to keep in mind when working with your franchisor. Royalty fees ranging from 2 to 10 percent of your monthly gross are also required. Gross sales are the calculated revenue your business receives from the sales of your goods and services. These royalty fees are similar to “member” fees for any other organization and are required by franchisors as a way to continue funding for their overhead corporation.