There are so many advantages to running your own business as part of a franchise. The perfect combination of freedom and support, it’s an excellent choice for both new starters and experienced business people looking for a change of lifestyle.
Before beginning the process of purchasing a franchise, there are lots of things to consider. One of the most asked questions relates to the investment level required in terms of capital and working capital. After all, this is one of the key factors in deciding if the business is for you.
Here, we break down in detail the costs you might need to pay when owning a franchise and the returns you can expect. While actual coffee franchise costs can vary depending on the company, situation, location and offering, this will hopefully help you decide what’s best for you.
How Does Franchising Work?
A franchise is a contractual agreement between a business owner – the franchisor – allowing you – the franchisee – to sell their products and services using existing brand trademarks and business systems.
The franchisee will pay the franchisor an initial fee for using these, along with royalties on subsequent sales.
Types of Franchise
Essentially, a franchise is an agreement allowing a party to sell and operate under the umbrella of a pre-existing business. As a result, there’s almost no limit to the types of franchises available.
The most famous franchise types are related to food and drink, but franchises are available for every industry, including services.
There are also various forms of franchise agreement available, including:
- Single Store Franchises – Manage a single premises.
- Multi-Store Franchises – Manage multiple premises in an area.
- Master Licence Franchises – Be in charge of building a network of franchisees over a set region.
In all of these agreements, the premise of the franchise is the same. As a franchisee, you get to take advantage of existing and proven business systems that support you in making your business a success.
The Costs Involved in Buying a UK Franchise
As you can imagine, the cost of buying a franchise can vary wildly depending on various factors, including:
- Franchise popularity/demand.
- The size of your franchise agreement (single, multi-store etc.).
- The length of your agreement.
- The location of your stores.
- The design and offer.
- Profit potential.
- Any extra support.
While some franchises can be relatively inexpensive on the surface, almost every franchise will require multiple forms of capital which you need to consider.
The franchise fee is the sum you pay for the right to use the franchise’s name and practices. This cost can be influenced by many things, most notably the popularity of the franchise.
Franchise fees can be anywhere from a few thousand to a few million, depending on the brand. Generally, you can expect to pay between £10,000 and £50,000. This fee is paid upfront.
It’s well-known that most businesses don’t return a profit until a few years down the line. In the same way that you keep most of the profits, the majority of franchises will expect you to front up the costs of getting your business off the ground.
Franchisors are often required to present proof of working or liquid capital before they get an agreement. Essentially, this is money that could be used to support the business until it starts to return a regular profit. Again, this figure can vary hugely, but you can expect to need considerably more than the franchise fee in additional working capital.
There’s a lot that goes into getting a new business off the ground, and it’s no different for franchises.
What type of agreement you have with your franchisor will determine what start-up costs you need. However, in most cases, you’ll be expected to pay for the majority of these:
- Property fees
- Store design
- Fixtures, fittings and furnishings
- Employee training
- Initial marketing & advertising
Franchises will make it clear which of these you’re expected to pay for as part of the franchise agreement and which are provided by the larger business. Often, these expenses make up the bulk of your initial outgoings as a franchisor and will be part of your total investment to get your business started.
The total investment will usually also include your working capital and the franchise fee, on top of the above. It usually is in the hundreds of thousands for an actual store and what is not the working capital can usually be financed.
Once your franchise is up and running, you can expect to pay a portion of your sales as royalties. This is to guarantee the continuous operational support, R&D, marketing etc. as well as giving you access to the company’s supply chain and economies of scale.
Royalties can sometimes be an agreed flat rate but are more commonly a percentage on gross sales (sales minus VAT). This percentage is usually between 4% and 8% but can be as much as 50%+, depending on the industry’s nature.
Royalties are usually charged weekly or monthly, depending on the nature of the business.
The Cost of an Esquires Coffee Franchise in the UK
At Esquires, we’re passionate about working with our franchisees to create authentic local experiences for the modern coffee consumer. As with any franchise, the exact cost of an Esquires Coffee franchise can vary depending on various factors.
For a single-store Esquires Coffee franchise, total investment is generally around £200,000 - £250,000. This figure includes a £19,500 franchise fee, working capital of around £85,000 and the following start-up costs:
- Property fees
- Store design
- Fit-out and furniture costs
- Support in hiring a team & training
Our royalties are 8% of gross sales and include 6% royalties and a 2% marketing contribution.
How Much Does a Franchise Owner Make in the UK?
Franchising can be a significant investment, so you’ll want to know what to expect as returns. Estimates by NatWest and the British Franchise Association state that around 97% of franchise-run units are profitable, far outstripping the chances of success as an independent.
Ultimately, how much money you’ll make as a franchisee comes down to how much success you can achieve and how hard you wish to work. Generally, store franchises will need two-to-five years before they break even. However they are generally trading profitably within the first 6-9 months. Beyond that, it comes down to how you drive sales both locally and on a national level.
How Much Will I Make with an Esquires Franchise?
Here at Esquires, our franchisees can generally expect a net profit ratio of around 12.5-15%. However, this is merely an estimate, and the actual results can vary on a vast number of factors.
If you are interested in learning more about franchising in the coffee industry, why not speak to our team today? We’ve worked with a huge variety of UK franchisees, from new starters to experienced businesses that share our passion for ethical coffee experiences.
We have franchise opportunities across all regions of the UK. So, if you want to join a fast-growing industry, why wait? Apply today!
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