Although the entry and ongoing costs of getting into franchising may seem like a lot, consider the costs to start your own business. A key advantage to buying a franchise opportunity is that your eyes are wide open to how much the business costs and the future costs of the business. After all, my Small Business Development Center (SBDC) counselor told me, “the #1 reason small businesses fail is because the business was under capitalized.”
Let’s take a look at the cost to start a business from scratch. People tell me they are surprised when they learn how much they need to budget for marketing and advertising their business. Jim Durkee, my friend who happens to be a stellar marketing business coach with Nothing By Chance Coaching, explains. “As a marketing guy, I want to do business with a company that would leverage a minimum of 20% in that first year. I will also let you know that most of my peer group, would not work with any account that did not intend to spend at least $40,000 in that same 12 months.” So, when a business plans their projected first year revenue of $100,000, the recommendation is to budget $20,000 towards marketing efforts.
Depending on the type of business one chooses to start, there are costs associated with building an office or location, equipment, vehicle, inventory, employees, software, training, licenses, & insurance. After the business is open, there are ongoing expenses such as rent, loan payments, grand opening advertisement, utilities, salaries, and more.
The franchisor has first hand experience from their existing franchisees. They can paint a very accurate picture of the cost of their opportunity. A person can determine from the franchisees when their businesses started to see positive cash flow. Sometimes, there are franchise owners in Wichita or KC who can confirm what the franchise costs. If KC or Kansas does not have a franchise operating in the area, you can verify with owners in a sister city like St. Louis or Indianapolis.
It may be cheaper to start your own business versus the cost of a franchise, but can you calculate the cost to keep it going while learning from costly rookie mistakes?