What are the Assumed Start-Up Costs when You Franchise Your Business?
You’ve asked yourself several questions and determined that you are ready to franchise your business. You’ve conducted a franchise feasibility study to gauge whether your concept is ready for expansion through franchising and what the current industry climate is like.
Now, you’re wondering how much it will cost to start franchising. While arriving at a dollar amount is helpful, you should know that your efforts will also cost considerable time and energy. But, if done methodically and carefully, franchising your business can be one of the most rewarding entrepreneurial endeavors you will have undertaken.
Here are some of the costs for some of the beginning stages of franchising your business:
Formulation and Preparation of a Franchise
As important as capital is for growth, time and patience may be more valuable at this stage. This is when you and your team develop a solid game plan to get your franchise growth efforts rolling toward royalty self-sufficiency. The definition of royalty self-sufficiency is basically the point at which royalties from franchisees cover the corporate entities costs. There’s myriad things to consider at this point. A few of them include:
- A strategy for building your franchise infrastructure
- A timeline for your growth strategy, which includes markets
- How you’ll find your franchisees
- Contingency plans for when you encounter common franchising pitfalls
- Where you’ll find capital and how to develop your plan for over-capitalizing
- Drafting your franchise disclosure document
If internal issues remain to be addressed, make sure you resolve them before you switch gears from business owner to franchisor. The activities you focus on as franchisor will be very different. As such, you will need to consider what resources are available to support your future franchisees in the areas of training, operations, marketing and more. When you begin, that resource may be you and/or your current team members. Be sure that everyone has adequate time to contribute beyond their current role to help the franchisees.
By spending sufficient time developing the foundation of your franchise system, you can begin growing aggressively and with confidence. When you encounter hurdles, you’ll know how to get over them thanks to the playbook you developed before launching your franchising campaign.
Granting of Franchises
Before you award a franchise, there’s a lot of groundwork that goes into finding the right franchisee candidates. To sign a franchise agreement with just anyone who shells out the money for the initial franchise fee would be foolhardy.
To attract franchisee candidates that fit with your concept and who share your passion and vision, you have to target them. Your franchise development strategy, which typically costs between $7,000 and $20,000 to get started (not including your media spend), should include:
- Public relations – A good PR team can help tell your brand’s story through traditional media outlets, such as print and online publications, TV and radio
- Marketing – Your marketing team can create and distribute information about your franchise opportunity via your owned media, which may include your franchise development page and social media. Collateral can include blog articles, videos, whitepapers, infographics, social media posts and more with keywords to catch the eyes of interested entrepreneurs.
- Online advertising – Ads can target Internet users looking for franchise opportunities. Ads displayed on social media sites, such as Facebook and LinkedIn, and search engines, such as Google, have been successful lead generators. These ads can lead interested viewers back to your blog, where they can be further persuaded to pursue the franchise opportunity.
- Your franchise sales team – You’ll need a group of experienced sales professionals to nurture the leads you get. Your team should include individuals who can provide a personal touch and be able to answer questions quickly.
- Discovery Day – This is your opportunity to get to know the candidates better and for them to become more familiar with you and the brand. Discovery Day should be designed to help you and the franchisee candidate determine if you can work together and if the opportunity is right for him or her. Discovery Day should showcase your strengths and reinforce the reasons why a candidate should join your franchise versus the thousands of others that are competing for their investment dollars.
You will also need to draft a franchise agreement that states what you will provide to the franchisee to help him or her run their business using your brand and systems. It will also stipulate rules they must adhere to in order to operate as your franchisee. This is a crucial document both you and the franchisee must sign. Since it is legally binding, use a franchise attorney or experienced franchise consultant to help draft it, and expect to pay between $25,000 and $35,000.
Corporate Team Development
One of the largest and most significant corporate expenses is salary. But, assembling an experienced sales team that will help you grow through franchising is a must.
In order to find franchisee candidates who are the right match, every member of your franchise sales team should know and love the brand as much as you do. After all, your brand is only as good as your franchise partners. If your franchise development team brings the right franchisees on board, awarding franchises will likely become easier, since those first franchisees can validate your brand’s opportunity. Expect to pay up to $200,000 for franchise development team salaries (including commissions).
Initial and Ongoing Support Costs
Next to profits, support is what makes franchisees most happy. Being known for providing a strong and effective support system will help you award franchises as well. You will want to devote plenty of time and resources to building support for your franchisees. Initial and ongoing support might include:
- Online, classroom and field training for franchisees and their employees
- Help with site selection and real estate
- Brand standards manual that is updated and shared frequently
- Proprietary financial programs or software
- User-friendly point-of-sale system
- Unit-level metrics analysis to optimize profitability
- Corporate-sponsored local marketing initiatives
- Grand opening support and media relations
- Purchasing and distribution systems
- Call centers or help desks
Creating training manuals and materials to teach new franchisees how to open and operate their new franchise will cost between $20,000 and $30,000.
For help determining what your start-up costs will be, turn to Winmark Franchise Partners. With 30 years of franchising experience and more than 800 franchise owners representing over 1,250 locations for five brands, Winmark Franchise Partners can help you help grow your brand through sound strategy and expert franchising advice. Contact us here or at (844) 234-8520.