The franchise financials

Can you afford the franchise you want?

Sarah Stowe
It’s vital to establish a realistic price ceiling before you fall in love with a particular brand – and commit to sticking with it. This must take all of the costs into account. You also need to consider the payback period – how long it will take to pay off everything you borrowed while paying yourself a reasonable salary. “A strong payback period is three years,” Peter Knight, a business and franchise accountant with Franchise Accounting & Tax says. “Anything less than that is good – though you need to look closely at anything under than one year as that sounds too good to be true. You should also consider the size of your investment if it will take four years to repay. And, if the payback is over five years, I’d say look at something else.” Is there a chance you won’t recoup your costs? Franchised businesses have a higher rate of success than start-ups, but success isn’t guaranteed. “The possibility that you won’t recoup your costs, or even make a profit, are the standard risks associated with starting a business,” Knight say. “To mitigate this, you should do all you can to learn the business and gain new skills, such as how to market, how to build a customer base and how to ensure customers keep coming back.” The training process will cover some or all of these areas, but Knight believes it’s good to be self-reliant. “Don’t rely on the franchisor to do everything for you,” he says. “They provide a system that has been shown to work so, from there, it’s up to you to follow that system and make it work for you.” Costs that are easy to overlook
  • A rental bond or deposit – typically two to three months’ rent.
  • Professional advice from a lawyer, accountant and, possibly, a business advisor
  • Costs associated with setting up a business structure
  • Costs associated with finance
  • Enough working capital to cover business and living costs while your franchise gets up to speed
If you let your heart rule your head, you could pay more than you can afford, or pay so much for a franchise that you will never recoup your money.