Understanding the Initial Franchise Investment
You’ve decided to finally follow through on your longtime dream of running your own business and becoming your own buss. You’ve decided you want to start a franchise and hit the ground running, avoiding the headaches of building a business from scratch. You’ve narrowed down the industry you want to operate in and have a pretty good idea of the concept you want to own. Now, the next question is of course, “how much does this cost?” Surprisingly, costs aren’t as straightforward as they seem, which means as a first-time franchise buyer you need to ask the right questions, because simply selecting the lowest investment isn’t an approach you want to take (especially if you’re in it for the long haul).
First things first: operational, fixed and variable costs defined.
If you compare the initial investment of a Spray-Net franchise with other painting franchises, you’ll see that ours is slightly higher than the average, making it a mid-range franchise opportunity. One reason why is that we include sizeable operating costs within your initial investment.
A business’s operating costs are exactly that: the costs to operate and run a business on a day-to-day basis. Operating costs are made up of both fixed and variable costs and the ratio of each will depend on the type of franchise you choose. As a general rule of thumb, the lower the fixed costs, the better.
Fixed costs are the daily expenditures that don’t change, regardless of your business’s productivity. They include things like marketing, annual salaries or, in the case of a franchise that requires a physical location, the cost of your lease. For a service-based, mobile business like ours, fixed costs include things like a vehicle lease and insurance payments. The cost of a franchise should take these fixed costs into account, and practically all franchisors usually do.
Variable costs are the costs that either scale up or scale down according to your business’s operations and productivity (as well as other wide-ranging factors). They are the costs that depend on actions that may be difficult to predict with 100% accuracy, such as the commission paid to a sales consultant or, in the case of leasing a space, utility costs. Because of their varying nature, most franchisors will instead outline working capital or cash flow within your initial investment to help you cover your variable costs. And we’re one of them! We take this approach to make sure you can comfortably cover your operating costs during your first year in business.
Take Away #1: after the upfront fees and capital expenditures, such as equipment, look for those operating costs. If you don’t, they’ll creep up on you when you’re least prepared to handle them.
Another reason why Spray-Net is a more substantial franchise investment is because of the inclusion of marketing costs in that initial price tag. A Spray-Net franchise can carve out a solid niche in local markets due to the unique and innovative aspects of our service. At the same time, being an emerging concept requires a robust marketing campaign to get the word out and educate local consumers.
Most franchises will outline an initial opening or grand opening marketing campaign as a standard. But what about after that initial, pre-sale push? Whether you’re looking into running a seasonal or year-long operation, you’ll need more than an initial push to help keep that sales pipeline full.
This is why our opening marketing costs are typically higher than the average service-based franchise. Not only do we include that initial push, we also include your marketing expenses for the entire year. This way, there are no hidden costs and no surprises.
Take Away #2: Don’t be put off by high marketing costs. Marketing is one of the most important operating expenses of a business and if you skimp out on it, customers won’t know you exist. And if they don’t know you exist, they won’t call you for your services. Be a savvy franchise buyer and ask about the year-long marketing expenses that you’ll need to cover after that initial grand opening push.
Equipment is a common expense within any franchise investment. Whether it’s a brush-and-roller painting franchise or a plumbing franchise, you need equipment and supplies to get the job done. Equipment costs are fairly straight forward. There aren’t any loop holes to be aware of when it comes to equipment. Surprisingly though, equipment costs can reveal something quite interesting (and even strategic) about a business.
Equipment costs (which should be reflective of the quality of the equipment itself) can be a good indication of a business’s barrier to entry, or competitive advantage. As a technical service, Spray-Net is a franchise concept that requires professional, specialized equipment, such as spray guns and temperature gauges, so our franchise partners can deliver a factory-quality finish outside the controlled environment of the paint factory. In other words, you can’t pick up what you need to execute a Spray-Net revamp at your local hardware store. Our partners deliver a service that homeowners can’t do themselves and that does a better job at keeping the local competition at bay.
Take Away # 3: Equipment costs can be a clue into the type of service you’re investing in. While potentially costing more upfront, higher equipment costs can be indicative of a more differentiated and desired service offering.
Maintaining a healthy cash flow is a must for any successful business. One of the most significant issues facing new businesses is the lack of a cash buffer as the business tries to establish itself. The cost of a franchise should always include an initial safety net.
Take Away # 4: Make sure you see a healthy cash flow buffer in a franchise’s initial investment.
Yes, technically another cost; but as an entrepreneur, you want to be in a comfortable position to make decisions that will benefit your business and not hinder it because you’re strapped for cash.
We leave you with our most important take away…
Make sure as many costs and fees as possible are put upfront and dig deep to find the value behind each expense. Proactively ask the right questions and anticipate those larger operating costs because you will encounter them head on during that first year in business. And when it comes to the unforeseeable, keeping a cash flow cushion will allow you to be better prepared.
In the end, the lowest cost franchise might not be your real winner.