Running a franchise is a lot more convenient than starting a business from scratch and going through the brand building phase.
However, the initial franchise cost and investment can, at times, be prohibitive and may kill your ambitions. On the other hand, a low entry cost might persuade you to buy a franchise business without realizing its running cost and other overheads, which, in turn, may force you to shut-up shop and lose the upfront money along with it.
This is why calculating all the costs involved with buying and running a franchise beforehand is super critical.
The Other Side of Low Cost Franchises
If you have been drawn by the entry cost of few low cost franchises, it’s time you educate yourself of the honey trap you might walk into. Stay aware that there are hidden costs involved, which keep coming to haunt you periodically. Right from recurring royalty fees to percentage based monthly payments; hidden charges can unsettle your budget planning and stretch resources to the limit.
Let’s zoom in a little and identify few of these hidden charges:
- Product sales: If you buy products made by the franchisor, it’s certain that they would put a heavy margin on them and make profits by sourcing those products to you. Many franchisors would mention this in the contract and bind you from looking for third party vendors.
- Rent: If you are in a contract under which the franchisor offers you space on rent, chances are they would pick a mortgage for the place and gradually own the place through your rent. Contrast this with a mortgage under your name and paying monthly installments. By doing so, the franchisors gain by entering into the real estate as well and increase their resources through your money.
- Upgrades: Since, there are fixed parameters for operating a franchise, franchisors are legally allowed to ask you to upgrade your technology and make profits in the process.
- Training: This is one tricky situation where franchisors might not only charge you a lump sum amount but also ask to pay training on a pay-per-use basis. Such arrangements might work out to be a bigger financial obligation that you thought it to be.
- Asking you to train subsequent franchisees: Check the terms and conditions carefully to see whether you will be obliged to train other franchisees, in turn, for free. This can be a hidden charge in terms of your time and resources.
Besides these, there might be charges for insurance, operating licenses, inventory, seating, equipments, signage, equipment maintenance, advertising fees et al. You need to factor them in while buying a franchise license.
The best way to stay in the ‘know-loop’ is to read the terms and conditions carefully. If you think, you don’t have the time or technical knowledge to make sense of them, use professional help. But do ensure that you clarify each and every term and condition before signing the deal.
Enough of Talking about the Bad Parts, Time For Some Good News about the Franchise Cost
Having read all this if you are finding yourself a little discouraged to take up franchise business, we have another eye opener for you!
Not all low cost franchises work with hidden charges. Franchises like DetailXPerts offer completely transparency and assistance in understanding the contract. We strongly believe that our growth lies in yours and therefore work as partners and stake holders than milk you for money.
So if automobile and boat detailing excites you or you feel your neighborhood is the ideal place to set up a similar franchise, talk to us and we will go the extra mile to take the guess work out for you and state everything in black and bold! Keep in mind, diamonds are usually found near coal.
Learn how to apply with us!
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