Financing the franchise

You are in business to make money so there's no point in choosing a growth strategy that doesn't maximise your profit potential. Some franchisors would be more profitable if they owned their outlets themselves. On the other hand, they would never have grown to a 50- or a 200-unit chain without franchising.

As with any business planning process, the financials use two different methodologies:

  • What will it cost me, so how much must I charge to make a sensible return?

  • What price will the market stand, so what can I afford to spend to make the business profitable?

In franchising, you must address these questions both from your point of view, as the franchisor, and from the point of view of your franchisees.

In constructing a viable financial plan for franchising a business do not:

  • Underestimate your initial costs and the associated financial prospects

  • Overestimate the early growth rates when you're just learning how to attract the right prospects

  • Assume you should make any real profit element on the initial fees

Good franchisors only profit when their franchisees profit.

Continuing fees, calculated as a percentage of turnover, are preferable. However, inevitably, some product distribution franchises rely on a mark-up on goods supplied.

The financial aspects of franchised businesses are as much a specialist area as the legal aspects. Many well-known Banks who are also accredited members of the bfa, have dedicated franchise teams whose staff thoroughly understand the model and should be approached directly. 


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