Bank of Ireland: The cost of franchising

Margaret Nolan, Business Manager, with responsibility for Franchising in Bank of Ireland, Business Banking.

Turnover for franchising in Ireland is in excess of €1.6bn excluding symbol groups e.g, Centra, Spar, which is why Bank of Ireland, Business Banking recognises the importance and development potential of franchising as a growth sector.

The average set-up costs for a franchise is €290K, but can be expected to grow to €350K per outlet as a reflection of the higher investment proposals being encountered. Banks will always expect the potential owner to provide a percentage of the total investment themselves, this may vary from 30 per cent to 40 per cent.

The costs of starting a franchise can be divided into two categories: initial start-up costs and ongoing payments.

Initial start-up costs.

Deposit - For most franchises, this is usually refundable, and once you proceed, this fee, usually about a €1,000 may be incorporated into the initial franchise fee.

Initial Franchise Fee: This fee represents the payment for the right to use the franchisor's brand and proven business model and techniques. This fee is associated with each franchise and a reduced rate may be negotiated in certain circumstances. The average fee is about €20,000.

Initial Working Capital: The average figure for initial working capital is about €40,000, which may cover initial stock and day-to-day expenses, usually incorporated into total investment costs.

Total Investment Costs: The main bulk of this is the costs involved in fitting out the premises such as, fixtures, fittings, equipment, signage and any other items identified in the Franchise Agreement. Some of this may be leased. The average total investment costs for a franchise in Ireland is €250,000.

Ongoing Costs

Fixed Fee: This is a regular monthly or annual fee that must be paid irrespective of turnover, and usually averages at €1,000 per month.

Management Fee or Royalty: This fee is a percentage of turnover net of Vat and varies between 7 per cent and 8 per cent. You pay either the fixed fee or the royalty.

Advertising Fee: This fee is also a percentage of turnover, averages 2 per cent to 3 per cent, usually used as a promotional fund to build the brand.