How Franchise Fees Save You Money

How Franchise Fees Save You Money

By: Jack Findaro, Finance Director at Visa Franchise

Jack Findaro Visa Franchise

Foreword

We at Visa Franchise act as the go to advisor for foreign nationals from all around the world looking to move to the U.S. through a franchise investment that qualifies them for an EB-5, L-1, or E-2 investor visa. While our clients have a diverse range of professional experience, with backgrounds in such areas as finance, corporate, medicine, or entrepreneurship, the vast majority choose to invest in a franchise due to the benefits that come with a franchise investment. These benefits include but are not limited to: help with setting up the business and training, ongoing support from the franchisor, and ability to invest in an established business model. However, these benefits come with costs, principally in the form of a franchise fee that is paid upon signing the franchise agreement and ongoing royalty payments made to the franchisor (click here for a guide to franchise industry terminology).

Costs of Investing in a Franchise

As a prospective franchise investor, it is natural to wonder if the costs associated with investing in a franchise are worth it. We at Visa Franchise work with our clients to help educate them on the direct cost savings that they gain from investing in a franchise that significantly outweigh the initial franchise fee and royalty costs they pay to the franchisor. If the franchise has a good business model and is structured properly, the franchisee should always be gaining more from the franchise than the franchisor. The main direct cost savings will be examined in detail.

Savings from Suppliers and Vendors

The most direct and explicit cost savings for a franchisee come in the form of lower costs for suppliers and equipment. If a franchise is structured properly, the whole system should benefit from cost savings as the franchise adds additional franchisees to their franchise system. The reason behind this is simple. The franchisor has more negotiating power with suppliers if they are able to show that the franchise system will buy more from them. Here it helps to look at a tangible example from a franchise in the food services industry that some of Visa Franchise’s clients have invested in the past. Major raw ingredients the franchise requires are sugar, mixing base, and fruit. The franchise has been able to successfully negotiate these costs and others down over 30% compared to regular pricing due to the fact that the franchise has an established track record with the supplier and can demonstrate that their franchise system will buy more supplies from the supplier. In addition to raw ingredients, a franchise’s equipment and design costs should also decrease due to the size and the negotiating power that comes with a large franchise system that has an established track record.

Assistance with Site Selection, Lease Negotiation, and Development

Typically, the most expensive part of investing in a franchise is the development of the location. Here the know-how of the franchisor is able to save the franchise investor a lot of money compared to if the individual decides to invest in a non-franchise business. Finding a suitable site location, which, depending on the type of business, can be one of the most important factors in the success or failure of the business. The franchisor’s experience is able to indicate which locations are possible. Additionally, the franchisor will be able to indicate if the location of an existing business can be taken over and converted to the franchise, which would bring significant cost savings compared to building from scratch.

In terms of the lease, a franchisor’s knowledge can prove almost invaluable through negotiating the lease in a way so as to gain tenant improvement (money that the landlord provides to the tenant for development of the space) and rent abatement (period of time that the tenant does not have to pay rent as the space is developed). These are two concrete items where a franchisee can save a lot on their investment.

The development of the site location is typically another expensive part of the investment. Contractors, architects, and suppliers must all be hired and coordinated to build out the location. The franchisor is able to indicate which are the best companies / professionals to use for this aspect as the franchisor typically knows different service providers that have worked with them in the past. This can save significant time, and money, in development costs that are directly passed on to the franchisee by allowing the franchisee to keep more of his money.

Savings and Efficient Spending in Marketing

Marketing is an important cost to consider for any business owner. Franchises help consult their franchisees on the most efficient ways to use their marketing money in order to save them money and enable them to gain more clients. Franchises can do this because they have the knowledge base of a whole system of franchisees that have been able to test different marketing initiatives to see what worked the best in gaining clients. When an investor joins a franchise, they are able to utilize this knowledge to save money and market in a way that brings in more clients more quickly and efficiently. An independent business does not have this same advantage.

Established Business Model

A franchise is an established and proven business model that an investor can buy the rights to use from the franchisor. By the time a business begins to franchise, the owners have tried numerous products and services before finding what works best for the U.S. market. This saves franchisees from having to make the same costly mistakes because the franchisor has likely already made those mistakes in the past as they were developing the business model. Changes to the business model, product, or services once a business is opened can be quite costly to overcome. Whereas a franchisee has the advantage of buying into an established business model, an independent business owner does not have this advantage as they will very likely need to spend time and money experimenting in the market before finding out what works and what does not work. These cost savings that are passed on to the franchisee can prove invaluable as it can be the difference between a successful business and one that closes within a year of opening. This aspect is that much more valuable for a foreign national investor who might be unfamiliar with the U.S. market looking for an investment that will qualify them for an EB-5, L-1, or E-2 investor visa.

Summary

By now it should be evident that the benefits and cost savings of entering a franchise are manifold. While there are certainly costs associated with entering into a franchise, the benefits should far outweigh the costs if the franchise is a good one. Our primary focus at Visa Franchise is analyzing franchises in depth in order to find out which are the best ones for our clients. Our work helps to significantly increase the probability of finding a franchise that provides significant value to the franchise investor, especially if they are a foreign national new to the U.S.

 

Who Is Visa Franchise?

Visa Franchise guides investors in identifying and analyzing the best investment opportunities tailored to their specific objectives. The focus of the firm is on franchises that qualify for the E-2 (1) and EB-5 visas (2). Visa Franchise is the trusted advisor of clients from all over the world when it comes to helping them find the business opportunity that best meets their investment and immigration goals. Visa Franchise takes into consideration their capability, experience, and size of investment to ensure that they choose the best possible option for their unique, individual situation. Visa Franchise is based in Miami, Florida with offices throughout the U.S. and world.

If you are interested in owning a franchise please reach out to info@visafranchise.com or call us at +1-888-550-7556

Note: Visa Franchise Does Not Make Any Financial Performance Representations Other Than Provided By Franchisors
(1) E-2 Treaty Investor Visa Allows A National Of A “Treaty Country” – A Country With Which The U.S. Maintains A Treaty Of Commerce And Navigation – To Reside In The U.S. When Investing A Substantial Amount Of Capital In A U.S. Business (Generally >$150,000)
(2) EB-5 Visa Requires At Least A $500,000 Investment In A U.S. Business That Creates At Least Ten (10) Jobs For U.S. Citizens Or Green Card Holders In The First Two (2) Years. Investors May Either Start Their Own Businesses As Active Investors Or Invest In Designated Regional Centers As Passive Investors