How much does it cost to franchise your business idea?

Griffith University Asia-Pacific Centre for Franchising Excellence

How much does it cost to franchise your business idea? The short answer is – a lot more than you would think!

All of the preparation work on systems, processes, documentation and trialling that go into getting a business to the stage that it can be franchised are a very big investment, both in terms of dollars and time.

Unfortunately, many people with their own business who take the plunge into a franchising future do not find this out until they are already deeply immersed in and consumed by the process.

The result is things that could have been done with pre-planning and from an informed position haven’t and therefore time, effort and most of all money is wasted in consultants fees. Professional pre-entry planning and testing can mean a brief to a legal firm, an accountant, or franchise or marketing consultant is succinct and locked down in terms of expenditure and deliverables, so that no one gets disappointed or ends up in bankruptcy.

So just how much does it actually cost to franchise? The feedback that we get from those who have been down this path is that there is likely to be very little change from $100,000 to $150,000, at an absolute minimum!

Finding a cost estimate of the initial stages of franchising is not easy and, while our ballpark $100,000-$150,000 figure is most probably conservative, it should still make any prospective franchisor stand up, take notice and ask themselves ‘do I really know how to go about this the most cost effective and efficient way?’

The right time to ask this, and find out the answer, is before you begin the process of franchising your business. That way, you are well aware of all the necessary steps and the associated costs and time before you are fully committed.

Essentially, you need to get franchise business savvy very quickly. Not necessarily implementing everything yourself, but truly being able to comprehensively understand the process and the implications of entering the business world as a franchisor.

For example, do you know the five key documents that are required by franchisors in order to franchise their business?

They are: a strong Business Plan that really maps out the growth strategy in terms of franchise and/or company owned outlets; an Operations Manual; a Head Office Operations Manual (for your business as the franchisor); a Franchise Agreement; and a Disclosure Document.

It is recommended that these documents are ideally prepared in the order listed above, as rushing into the Franchise Agreement before the other preceding documents are done is like building a house without any plans. Preparing each of these documents requires a large investment in both time and cost, with the Franchise Agreement and Disclosure Document also requiring the use of lawyers.

This obviously adds further to costs, especially if you need to go into re-writes and amendments producing multiple versions that will all be billable hours. After all, it’s not the lawyers fault if you’re not sure how it’s all going to work and they receive several briefs!

Also, it’s not just lawyers. You will probably need to use other franchise-specialist third parties such as operational and marketing franchise consultants, franchise specialist accountants and financial advisers to set up your business, and that’s before you even sell a single franchise.

Establishing a pilot franchise operation, which can demonstrate sustainable replication before you start to engage franchise partners, is also highly recommended in proving the viability and sustainability of a franchise concept. While this can save you money in the long run it is also a significant set-up cost to the early stages of franchising.

There are many things you need to understand, think about and plan for. From trademarking and protecting your IP to creating a site selection guide, franchisee recruitment strategy, brand style guides and structured marketing support, employment position descriptions for your support staff and the staff of your potential franchisees, internal communications plans - not to mention engaging auditors to report on your levies. The list goes on and on.

Even when you’re up and running the list continues because in business, especially a franchise business, you need to be on a path of continual improvement and innovation to be successful.

So even from this basic overview, it is easy to see how it all adds up to a very substantial cost commitment quickly, especially if you’re not well prepared and haven’t done your due diligence preparation work.

Taking the time to learn more about everything that is involved with franchising before you make the leap is a sound investment in your business future, wherever it leads you.

It may actually lead you to a decision that franchising is not the right path for you, in which case you will have saved yourself a lot of wasted time, effort and money.

If with some early education on board you still wish to pursue a future in franchising, you will be going in prepared, with your eyes wide open and there won’t be as many hidden surprises and shocks about just what is coming your way, and how much it will cost.

Learn more about all that is involved in becoming a franchisor by speaking with existing franchisors and franchisees. Learn what steps they recommend to make the journey easier.

Sign up for all things franchising to learn more about the sector, enrol in the free Webinars offered by Griffith University’s Asia-Pacific Centre for Franchising Excellence and the tailored eClasses that have been developed in response to this need for pre-entry franchisors to educate themselves and undertake as much due diligence as possible before they launch.

The ‘How to Franchise’ eClasses are a cost-effective way to prepare for being a franchisor. It’s a sound investment of $695 that will pay dividends long after they’ve been viewed. It’s available 24/7 via the website and download.

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