The original set up costs i.e. the purchase of the Franchise itself and the set up costs for that Franchise to begin trading. If you are buying a Franchise that requires a shop front, especially a Franchise in the food/cafe/restaurant industry, the set up costs can be enormous. Up to a million dollars is the usual. Unless you own the property, when you are setting up your shop you are adding value to someone else's building and then you still have to pay them rent! The money spent on set-up cannot be recovered if your business folds, you may only be able to sell some items second hand. If the landlord terminates your lease, or doesn't agree to extend it, you may have to pay for the set-up again, in another location so that your business can continue trading.
2. You could loose it all.
There is no certainty in purchasing a Franchise. You only buy the branding, the business logo, reputation, name, and established operating systems. You cannot buy business success. There is no security or guarantee that your own business will succeed. There are no promises from the Head Department, that you will ever make any money. If your business begins to fail and you are unable to sell, there is usually a contractual agreement that the Head Department will take over in an effort to keep the business alive, but then the profits are no longer yours. You would lose all of your original investment. You will most probably lose your house.
3. Paying more than once.
As well as the original start-up costs, you will have to pay to the Head Company, a percentage of your profit always. If they are supplying the goods that you on-sell (e.g. a specific brand of coffee) then they know the amount that they are supplying and therefore what your profit is. There is no hiding anything! You will contribute to advertising as part of your ongoing Franchise monthly fees. You also have to participate in their advertised 'specials' and 'special offers' whether or not you perceive it as good for your own individual circumstances. You are always expected to comply with your contractual agreement, so read the fine print very carefully.
4. The true cost of borrowing money.
Borrowing money from the bank for a business start-up during this recession is difficult and the Bank considers business loans to be high risk, so their charges are reflective of that. Bank loans for Commercial purposes come with higher management fees and higher interest rates. The bank will request security for the loan, usually your family home. This becomes high risk for you - if the business fails, you will lose the business as well as your home. When you are calculating your costs, remember that your business will not officially be in profit until you have repaid the bank and all the compounded interest accumulated from the day your loan was activated. That could take years, even under the best of circumstances. Warning: in these current economic conditions people have been reducing their spending, thus increasing your business start-up risk.
5. The difficulties of Staff Management and Business Operation
Managing staff, with all of their individual personalities and their own family circumstances, can be exhausting. There are the last minute shift cancellations, sick leave, maternity leave, holidays, training, hiring/firing, safety requirements, workers compensation, superannuation, wages and taxation accountability etc. There are endless hours (often after the close of trade) of office-work ensuring that the business complies with Government regulations and Workchoices. Increased hours at work will mean less time with family and friends. There are associated Insurance, Accountancy ($3,500+ per annum) Book keeping ($60 per hr) and Legal fees. In owning and operating any business, you will also be responsible for dealing with complaints and/or possible law suits which are increasingly common.
To reach Financial Freedom Fast without the Risk of purchasing a Franchise consider alternatives. A home based business in an Industry which is booming during this recession may be just the solution you are looking for.
Belinda_Smith
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