What is the start-up cost for setting up a franchise?

According to the Canadian Franchise Association, franchises play a significant role in the Canadian economy, contributing $68 billion in yearly revenue and providing jobs for nearly 1 million Canadians. The roughly 78,000 franchises in Canada provide exciting options for business owners, and they are not only restricted to the fast food industry. One in every fourteen working Canadians is employed directly or indirectly by these companies.

In Canada, 60 percent of franchises are for companies in industries other than food as of 2017. If you want a piece of this thriving market, you must first understand what it will take to get started. Depending on your financial status and franchising goals, this can vary greatly.

Franchise costs

Franchisees typically pay an upfront flat fee for the privilege of using their brand. The franchise fee can vary widely based on the sector, brand, region, and other elements including the franchisor's expansion plans, from a few thousand dollars to over $75,000. You might choose to start a franchise under a well-known, high-end brand, but you should be prepared to pay more for the value of that brand. Franchise costs can vary significantly depending on the strength of the brand, even in the casual consumer market, which includes companies like fast food franchises. An internationally recognised franchise, like Taco Bell, will cost you about 1.5 times as much to buy a franchise as a Canadian franchise, like Tim Hortons.

Other criteria and requirements

Larger companies frequently have stricter criteria for the kind of investor they want. If you have the necessary funds, you can open a single Tim Hortons in Canada. However, Taco Bell and McDonald's do not even examine applicants who do not have plans for several sites. Large corporations may also afford to be pickier regarding the financial standing of the potential franchise owner and may impose stricter criteria for your own financial situation. Since many firms are not successful for a year or even more after beginning, franchisors want to know that you have the financial stability to maintain the business regardless of market volatility. Be prepared to provide proof of your net worth, fulfil minimum requirements for both, and offer confirmation of your liquidity.

Initial Expenditure

Franchisors usually disclose up front what you might anticipate spending to launch your firm. In order to prevent you from incurring excessive amounts of debt while starting your new business, they could stipulate that a certain percentage of this initial investment be made up of liquid assets, such as cash and short-term bonds. You may be able to start a business with less than $10,000 if you don't need to rent, buy, refurbish, or develop any real estate. As a result, franchises that let you operate remotely or while travelling are an excellent choice for business owners with minimal resources. On the other hand, if you've always wanted to develop your own hotel chain, be prepared to fork up $5 million or more to buy the land and start construction. The majority of franchises lie in the middle of these two extremes. Although the cost of leasing or constructing an operating facility varies depending on the cost of real estate in your area, many expenses are often the same across all locations, so you can use the franchisor's tools to budget for these expenses. Keep in mind the labour and service costs of beginning a new business in addition to any projected physical costs, such as property renovation, filling it with tools and supplies, and updating signage and branding. Many successful franchises depend on insurance, legal, and accounting services. You should also plan for the costs of hiring new employees and providing them with basic training.

Costs of Sales

It's an exciting time when you make your first sale because it marks the start of your continuous financial commitment to the franchisor. Your beginning budget needs to be planned accordingly. Expect to pay the franchisor a royalty charge equal to a portion of your gross sales. That usually falls between 4 and 8%. Franchises sometimes demand you to contribute to the costs of brand promotion; these costs typically range from 2 to 4% of your gross sales. You might also need to pay additional rent for equipment or other regular operational costs, depending on the franchise. Therefore, while creating your startup budget, make sure to account for any flat fees or royalty on gross sales. Even if you don't make a profit in the beginning of your business, keep in mind that you are responsible for those costs from day one. No matter who you sign a franchise agreement with, keep in mind that the owner of the brand has just as much invested in your success as you have. Even though the initial costs, which can range from significant expenses like renting property to little expenses like stocking enough plastic straws, may seem overwhelming, franchisors make it their business to remove as much uncertainty as possible from the process to ensure everyone's success. Utilize their franchise resources, which may include startup manuals and continuing coaching and assistance, to make sure your startup budget is successful.

How can we help you in your Financial Planning for your franchise

For success when planning to launch a franchise, getting your finances in order is crucial. We can help you prepare Financial reports including profit and loss statements, cash flow forecasts, and more. Our team will assist you in managing your finances, producing polished reports, and locating the data you require.