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 consultant is succinct and locked down in terms of expenditure and deliverables, so that no one gets disappointed.
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 and ask themselves ‘do I really know how to go about this the most cost-effective 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 5 mandatory documents that are required by franchisors in order to franchise their business?
These mandatory documents are:
Business Plan to map out the business and growth strategy in terms of business projections, franchised and/or company owned outlets;
Operations Manual (Franchisee) to outline how the franchisee will operate the business systems to the franchisor’s standards;
Operations Manual (Head Office) to outline how the franchisor will run the support office and the resources available to support franchisees;
Franchise Agreement is the legal binding agreement between a franchisor and franchisee that permits the franchisee to operate under the franchisor’s brand, systems and operational model;
Disclosure Document is required by the Franchise Code of Conduct with the purposes of giving a prospective franchisee key information about the franchise group, and an existing franchisee current information about the running of the franchise.
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 revisions and amendments producing multiple versions that are billable hours.
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, bookkeepers and financial advisers to set up your business, and that’s before you sell a single franchise.
Establishing a pilot franchise operation to demonstrate sustainable replication before you start to engage franchise partners, is also highly recommended in proving the viability of a franchise concept. While this can save you money in the long run, it’s also a significant set-up cost in the early stages of franchising.
There are many things you need to understand and plan for in becoming a franchisor. From trademarking and protecting IP, to creating a franchisee recruitment strategy, site selection guide, brand style guide, employment position descriptions for support staff and franchisees, marketing and communications plans for group and local campaigns, and engaging auditors to report on franchise fees and marketing levies.
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.
With some early education, you may still wish to pursue a future in franchising to fund business growth. Once educated you will be going in prepared with your eyes wide open and there won’t be as many hidden surprises about what is coming your way.
Our ‘How to Franchise’ eClass is a cost-effective way to prepare for becoming a franchisor. It’s available 24/7 online and can be attended from anywhere in Australia.