Almost daily someone will ask me how much it costs to start a franchise, and most of the time the person asking the question is assuming you have to invest a fortune to open any franchise. That’s just not true!
While the early days of franchising gave us household names like McDonald’s, Burger King, Wendy’s and many more brands that are relatively expensive to open, in recent years the idea of easily replicated business models from National brands has extended to a myriad of affordable options.
It all boils down to the basics of business, most notably what makes a business either expensive or inexpensive to get into.
So, what are some of the costs that can make a business expensive to start up?
- Having to purchase land
- Needing to build a building to operate out of
- Rent for a restaurant or retail space, some of the most expensive real estate to rent
- Building out an existing space so that you can operate your business
- Inventory, this can either be for food or retail
- Large staffing requirements
- Long and complicated permitting processes
- And we could keep going…
So, how is it that there are affordable franchises?
It’s simple really, they have crossed off some or all of the items on the list above when they built their business model.
Let’s look at a comparison:
A fast food restaurant opens in a strip mall, they keep their costs down by not needing a piece of land and a stand-alone restaurant. The owner rents a space and builds it out with whatever kitchen, cold storage and dining room they need. Now, while it is in a strip mall it needs to be a prime site with visibility which makes it an expensive location to rent. The owner will also need to get the appropriate licensing, stock up on food and beverages and hire a team to prepare for grand opening. The amount of food and staff they need to operate on day one will not be too far from what he will need when his business is mature.
In contrast let’s look at a commercial services franchise. These often will vary between home based and small office based depending on how much staff is required. The franchisee may rent a small office, may have an office manager and/or salesperson, maybe even a technician. Their office probably does not need to be built out, but may need furniture. If home based, there may not be much opening cost at all. Depending on the kind of service they may be a moderate amount of inventory, or none at all.
Notice what isn’t eliminated in the pursuit of affordability?
The ability to make money.
The cost to start up your business may or may not be directly related to your ability to make money. It speaks only to the cost of the stuff and people it takes to run particular businesses.
One important thing to note, if you own a home or office-based business it may be more of an owner involved business model than a franchise that requires a retail box. So whatever you do in these categories you will want to be confident that you can and will do the work that the franchisor knows needs to be done for that business to hit home runs.
To that end, you will want to draw up a description/model of what you are good at, what you are not as good at or what you just don’t like doing. Also outline how you want to work, what days you want to work and what personal commitments you want to be sure to be able to attend. Last of all, write down your goals.
When you engage affordable franchise brands, share that model with them. Make sure it is a discussion topic as you work with them so that you and they can come to a decision as to whether that particular franchise is a good fit for you and that you will do the work it takes to make it successful.
One last note (and possibly my favorite):
Restaurants and retail stores have a protected radius, not protected customers. In those models the customer decides which restaurant or store they go to and it might not be the one nearest their home.
Affordable franchises are often territory based, meaning the franchisor outlines a protected territory based on the number of potential customers for the business that live or locate in the territory. Because these services are often performed at the home or business of the customer it is far easier to have protected potential clients. You will know who and where your customers are, go get ‘em!
What will your success story be? Let’s go find it!
George Knauf is a highly sought after, trusted advisor to many companies; Public, Independent and Franchised, of all sizes and in many markets. His 20 plus years of experience in both start-up and mature business operations makes him uniquely qualified to advise individuals that have dreamed of going into business for themselves in order to gain more control, independence, time flexibility and to be able to earn in proportion to their real contribution. Contact the Franchising USA Expert George’s Hotline 703-424-2980.