Franchise finance between $200,000 and $300,000
In the $200,000-$300,000 price range, a world of franchise opportunities will be opened to you. Read on to find out about franchises in this price bracket, and how to secure finance.
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A franchise business arrangement allows the franchisee to make use of the branding, marketing efforts, products and services, and sometimes ongoing training and support offered by the franchisor. While franchising is considered by some to be an easier business model than starting a new business from scratch, it has its share of special considerations.
Read on to find out more about franchising in Australia, and the franchise opportunities that may be available to you in the $200,000 to $300,000 price range. In particular, learn about finance options and read valuable advice on how to get approved for franchise finance in this bracket.
Compare the following Franchise Finance options between $200,000 and $300,000
Franchises for sale between $200,000 and $300,000
Franchises valued between $200,000 and $300,000 are considered to be mid-range in terms of initial franchise fees, and potential franchisees with this kind of budget will have a wealth of business opportunities available to choose from.
It is important to understand that there is more than one way to buy a franchise business. Perhaps the most well-known way is to enter into a franchise agreement with the franchisor and then open a new business and build it from the ground up. However, equally common is to purchase an existing franchise that has previously been established and is now being offered for sale as a going concern.
In the $200,000 to $300,000 price range, you will have access to franchises that can be built from the ground up as well as potentially higher valued existing franchises that are underperforming and are being offered for sale. While it can be tempting to purchase a big-name franchise like Chicken Treat, Lone Star or Muffin Break at a significantly lower than market value price, it is extremely important to have a full understanding of why the business is being offered for sale at a reduced rate.
Inevitably, this will be because the business is underperforming financially, and the current owners are looking to get out of the business and recoup some of their losses. The only way to know for sure is to request full financial disclosure from the current franchisee – which they are required by law to provide to you, as a potential purchaser – and then seek independent legal and financial advice from your accountant, lawyer and/or financial advisor as to the true financial state of the business.
With this in mind, the following franchise opportunities could be available to you in the $200,000 to $300,000 price range:
- Australian Skin Clinics, which offers cosmetic medicine procedures including laser skin treatments.
- Bakers Delight, one of the more well-known retail bakeries in the country, in operation for more than 38 years.
- Bedshed, a reputable specialty bedding, mattress and bedroom furniture franchise.
- Boost Juice, a highly recognisable juice and smoothie brand that has found its way into many of the major shopping centres throughout Australia.
- Domino's, arguably the leading pizza brand retailer in Australia, which revolutionised online pizza customisation, ordering and GPS driver tracking.
- Just Cuts, a low-cost, no fuss hairdressing franchise that offers inexpensive hairdressing services without appointments, capitalising on impulse decisions and walk-by traffic.
- Mad Mex Fresh Mexican Grill, a casual dining and takeaway Mexican fast food brand that is enjoying increased popularity and demand, offering healthy, tasty food at reasonable prices.
- SumoSalad, potentially the market leader in healthy fast food, offering ready-made salads and customisable dishes at low price points and with quick service.
Understanding the costs of a franchise
The costs of a franchise
Understanding the costs of a franchise, both initial and ongoing, can be a daunting task. It is in the cost structure that franchise businesses greatly differ from traditional business structures, with ongoing royalties and, at times, ongoing compulsory marketing contributions payable directly to the franchisor.
When comparing franchise options between $200,000 and $300,000, consider the following:
- What is the initial investment required to open a new franchise? If purchasing an existing franchise, what is the purchase price?
- What are the estimated costs to fit out new retail premises, including outlays for initial stock? If purchasing an established franchise, are any renovations or improvements required? How much is this likely to cost?
- What are the ongoing royalties and other fees payable to the franchisor?
- Are there any compulsory franchise payments applicable, separate to royalties, such as marketing contributions and ongoing training fees?
- To what extent is marketing undertaken by the franchisor, and how much is it likely to cost to undertake a reasonable amount of local marketing for your franchise?
Hidden costs to consider
While some of the costs associated with running a franchise will be obvious and easily determined such as the initial outlay and ongoing royalties, there are also hidden costs that many new franchisees fail to budget for. Consider the following:
- Loan repayments. It can be tempting to think that your work is done once you have secured finance for the purchase of a new franchise. However, keep in mind that loan repayments are a non-negotiable business expense that must be paid regardless of whether your business is bringing in a profit or not. In the financially unstable first few years of a new business, this can be difficult to account for.
- Cost of goods sold. If considering a retail franchise, the cost of goods sold is a metric that must be accurately estimated and understood. While it can be difficult to put an exact figure on the cost of goods sold before you begin trading, speak with existing franchisees and make use of other resources, including your accountant or financial advisor, to make a good estimate.
- Wages. Beware advice that claims the cost of wages should be a certain percentage of sales. Especially in the first few years after a new business is established, the cost of wages will undoubtedly be a disproportionate proportion of sales. If the business is managed well and becomes a successful venture over time, the proportion of wages to sales will soon level out to a more reasonable amount. However, in the meantime, an actual estimated figure for wages should not be based on guesswork.
Finance options for franchises between $200,000 and $300,000
What types of franchise finance are available?
Most new franchisees looking to purchase a franchise between $200,000 and $300,000 will need access to finance to fund at least part of the initial outlay of the business.
The most common way to finance a franchise in this price range is with a business loan. While the terms of the business loan will vary considerably depending on your financial circumstances, your chosen lender and the industry of the franchise you're looking to invest in, there are two main types of business loans.
- Secured business loans require an asset to be put up as security for the loan. Ideally, this will be a residential property, but could potentially be commercial premises or even, less commonly, the business itself.
- Unsecured business loans are harder to negotiate and generally attract less favourable terms and interest rates than secured business loans. The term of an unsecured business loan will typically be linked to the term of the franchise agreement itself.
How to compare franchise loans
When comparing different franchise loan options, consider the following:
- Loan amount. How much do you need to borrow to fund your new franchise business? Keep in mind that most lenders will not include an amount for working capital as part of the loan amount. Once you know the amount you need to borrow, compare the percentage of this amount that various lenders will potentially offer.
- Interest rate. Will you choose a fixed or variable interest rate? How do the interest rates of different lenders compare? While interest rates should not be the sole consideration when comparing loans and must be weighed against fees and other charges, interest rates can still make an enormous difference to the ongoing repayments required.
- Flexibility. Can you redraw from the equity in your loan if needed in the future? Can you make additional payments on your loan during times of high profitability without incurring additional fees or penalties?
Frequently asked questions
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