Savvy entrepreneurs who have created their own business with a proven track record of success will be looking to expand and grow their venture to new heights. And this is exactly what franchising offers.
Although the ability to earn from both your prospective franchisees’ initial investments and ongoing royalties is a great motivating factor for future earning potential, converting your business into a franchise does require some upfront costs.
One of the most frequently asked questions we are asked is what should I charge to franchise my business to others? In this article, we explore the associated costs of opening a franchise to help you plan ahead better.
Table of contents:
- Important costs of owning a franchise
- Franchise business registration and legal costs
- Protecting your intellectual property
- Documentation preparation and the franchise package
- Insurance costs
- Franchise business premises
- Transportation costs
- Marketing costs
- Equipment, stock, software and assets
- Payroll and staffing
- Franchisee recruitment costs
- Concluding remarks
Important costs of owning a franchise
In the outline below, we set out to consider the most frequently encountered factors that accumulate to give you a rounded figure of what you can expect to franchise your business.
Bear in mind that as every franchise is different in size, scope and operations, costs are just an estimate and that you will need to consult with a professional to get a more precise figure for your particular business.
With that being said, here are some of the most important costs to consider.
Franchise business registration and legal costs: From £1,450 – £8,990+
Although you may already operate a business entity, the chances are that it is registered as a sole proprietorship, partnership or limited company.
The franchise venture can be a bit more specific and as such, you will need to engage in the process of converting your business into a franchise under the umbrella of one of four different business structures.
This will necessarily involve legal costs of starting a business, such as company incorporation, opening a corporate bank account, government fees and others.
On average, entrepreneurs in the UK pay from £1,450 up to £8,990 for their company registration.
Protecting your intellectual property: From £170 – £500+
Because franchising involves the registration of your intellectual property, you need to set aside costs for this as well.
According to the gov.uk website, the general cost for a standard application for trademark registration is £170.00 for one trademark in one class. The amount increases by £50.00 for every subsequent class that you add on.
Documentation preparation and the franchise package: From £0 – £20,000+
Documentation preparation is one of the most important parts of setting up your franchise business. It involves creating your franchise agreement (which is a legal document) as well as your operations manual, which contains all the instructions for replication by the franchisee to run the business seamlessly.
Although you can create your operations manual by yourself, costing you nothing except for copious amounts of time, the franchise agreement will require expert legal help to ensure that no loopholes remain and that the agreement is solid.
Insurance costs: From £143 – £1,000+
Getting insurance for your business is crucial. This includes not only public liability insurance but employer’s liability insurance, professional indemnity, building/premises insurance and others.
It’s also worth considering how many employees you will be insuring for and as such, the figure can go beyond £1,000.
Franchise business premises: From £150 – £1,500 per person, per month
Even though your business may be a service franchise without the need for office space, you will nevertheless require office space for your headquarters.
Some recent studies put the average figure for office space in the UK at anywhere between £150 – £1,500 per person, per month.
Transportation costs: From £100+
Your transportation costs are another cost to open a franchise. This will be highly dependent on the locations you are travelling to and from, the distance, the means of transport, the cost of fuel, vehicle insurance costs (if any), etc.
As such, these can go from as low as £100 and as high as necessary to cover your transportation needs.
Marketing costs: From £400 – £15,000+
Marketing costs associated with opening a franchise include carrying out market research to determine the feasibility of your plan to defining your ideal customer buyer persona or ideal franchisee persona.
Other related but necessary costs can include website design and build, website hosting, email hosting, customer acquisition costs, online advertising, social media marketing (paid and free) and traditional marketing through leaflets and brochures.
Equipment, stock, software and assets: From £100 – £250,000+
Many franchise operations such as fast food and restaurants require heavy equipment to enable them to run. From the right ovens and stoves, to the right dishwashing machines – they can cost exorbitant amounts.
Meanwhile, franchises that are service-based will usually have branded vans. The costs of these vehicles must be factored in as well.
Some franchises, on the other hand, merely require an internet connection and a laptop and mobile phone. As such, these costs will greatly vary between different franchise operations.
In addition, many franchisors choose to purchase customer relationship management and other software to ensure more streamlined business operations. The costs of such software will again differ depending on what you choose.
Payroll and staffing: From £4,000 – £25,000+
It is unlikely that you will be able to run your franchise business by yourself. As such, you will need the assistance of franchise development consultants, franchise sales brokers, solicitors, accountants, your internal staff (both management and their associated teams) and more.
These costs will vary from industry to industry. And when it comes to external consultants, you can either pay a fixed fee or a monthly retainer. This means that the cost structure will vary in every unique case.
Franchisee recruitment costs: From £2,500 – £25,000+
To recruit and onboard your first franchisees, you first need to attract them. This means having a website that’s specially designed for franchise recruitment. You also need staff on hand to deal with prospective franchisees. These costs are compounded when you need to create training programmes and materials. And as such, they can easily add up.
Concluding remarks
Having covered some of the most crucial costs you need to consider when franchising your business, it becomes apparent that there is no quick and easy answer to the question how much does it cost to franchise my business. Your franchise operation may be a hotel or a major fast-food franchise that costs millions of pounds to set up.
Alternatively, you may be offering local pet-sitting services with much lower overheads in comparison and therefore, much lower franchise start-up costs.
With so much variety in the industry, if you need any help with your franchise sales and new business development, why not get in touch with us? We are more than happy to be of service!
