Why do franchise investment levels vary so much?

Franchises, like businesses in general, come in all shapes and sizes. Some envisage franchisees working from home, perhaps on a  part time basis, others may require a franchisee to operate from a van and yet others may envisage very substantial retail premises being used for the purpose of the franchise.

You should look at franchises which you can afford because, generally, the banks may be prepared to lend 50 or 60% of what you need to start up the business, if it is a well established franchisor with a successful track record of franchising, but you would have to find the rest.

You should bear in mind that not only will you have to pay an initial fee to the franchisor, but you will also have to buy equipment, possibly a vehicle and if you are operating from premises you might have to undertake a shop fit, and pay a premium on the lease, so you need to know precisely what you are going to have to pay out and when. You also need to remember that your business will not be profitable immediately and, indeed, it may take over a year before it is in profit so you will have to have sufficient funds with which to live during that period.

When you have calculated the total initial outlay, you need to establish, with the help of the franchisor and talking to other franchisees, the likely levels of profit to ensure that it makes sense to incur that initial outlay.  For instance, it would not be sensible to incur an initial outlay of £100,000 if the annual profit from the franchise business is unlikely to exceed £25,000 and you make a loss in the first two years of a five year franchise term.