When people look at franchising as an option for self-employment, those with less than ample finances generally put the option off. Yes, many franchises do cost six, even seven figures to fully set up and run, but just as many cost less than £100,000. In fact there are a generous handful that can be started for less than £10K total investment, and many more require a personal investment of less than that. From vending machine franchises costing less than £5K, to coffee van franchises like Really Awesome Coffee that cost less than £20K, franchising can actually be very affordable.
Table of Contents
- What is a Franchise?
- What are the options?
- Zero Cost Franchise FAQ
But how do you start a franchise with no money? Despite it sounding very suspicious, if not financially dangerous, there are several options you can choose to invest in a franchise without any money. But first, let’s take a look at what franchising is.
What is Franchising? What is a Franchise?
Franchising refers to a method of business expansion. Through franchise units, a brand delivers the same products and services, consistently through its franchisees. Franchisees are entrepreneurs. People like you, looking to set up and run their own business, under an established brand name. Each franchisee invests in the franchise, ie – paying for the rights to trade along with a “business in a box”. Most franchise investments cover training, support, and everything you need to launch the business. That too, includes marketing, equipment and often starting stock should it be required.
Franchising is one of several ways of business expansion, but unlike company-funded expansion, it is the franchisee that funds it. But it would be, because the franchisee owns the business in that area – not the company. The franchisor still owns the brand, the trademarks which the franchisee pays a royalty fee for ongoing, for continued access the duration outlined in the franchise agreement.
According to a BFA Natwest survey, 93% of franchisees claim profitability. This is a greater figure than the success rate of individual startup businesses which is otherwise 79%.
But how do you become a franchisee, and do you need to fund the franchise entirely yourself? Let’s take a look.
Franchising with No Money – The Options
When it comes to investing in a franchise with no money of your own – be it no cash whatsoever, or 100% of your money allocated to working capital, there are a number of options you can choose. From bank loans to zero cost franchises, it is possible to get into business ownership without any money. Some franchises are cash positive from day one, meaning as soon as you launch the business, you’re making money back. For example with oven cleaning franchises, once the business is launched, you’re taking money from clients. This money as turnover, pays for your expenses. Within several months, you’ll break even – ie have fully paid off your initial expenses such as the investment, and are making profit.
But what are the options when it comes to actually launching the franchise with no money? Let’s take a look.
Zero Cost Franchises
With a range of loan options including that of Startup Loans (British Business Bank), its possible to borrow up to 100% of the franchise investment and repay this back over several years. Many “zero cost franchises” will be advertised as £0 investment. Most often, the franchisor will provide you with the tools and training to launch the business, profiting from royalty fees ongoing. There are several types of franchise royalty fees, so speak with the franchisor beforehand.
Whilst the prospect of a zero cost franchise can sound attractive, it is important to do your research. Carry out due diligence and explore each opportunity very carefully. Whilst there are some scam businesses floating around, many are legitimate low cost franchises and the franchisor makes their costs back through the ongoing fees. Home based and online businesses are usually the most common types of zero cost franchise opportunities. They have low overheads and minimal costs for both the franchisor and franchisee.
Franchise Finance Through a Third Party
As discussed in zero-cost franchising, many banks and businesses can lend you the money required to launch the business. Most banks can lend up to 70% of the franchise investment, whilst others can lend up to 100% (up to a certain amount). The British Business Bank can lend up to £25,000, repayable over 5 years. Franchisors are often able to help with finance too. However banks typically prefer investors to have capital so unless you are able to set aside a good figure, this option may be off the table.
Whilst many franchises are cash positive from an early stage, seeing cash flow early on, some require working capital. Working capital is a sum of money you need to set aside to maintain the operation of the business ongoing. This is spent on things like marketing and staff wages if required. Setting aside working capital means you can better run and fund the business whilst your initial loans and expenses are paid off.
Looking into loan options is a great way to invest in a franchise with no money. However it is also very risky, because as with any type of investment, there is no guarantee of success. Whilst franchising does have a greater success rate compared to starting up alone, there is still the chance of failure. Franchising isn’t paid employment, and it is your responsibility to make it work. The franchisor will provide you with access to a proven business model and established brand, your role is to make it a success in your territory.
Government Backed Funding
There are often a number of government backed funding and grant options when it comes to launching a business. There are a number of checks involved but the government are eager to help people get into business. And franchising is no exception. You can check your eligibility through the government portal, and there is a wealth of resources available to you including support.
If you don’t mind sharing your ongoing profits, opening them up to investors may be a good choice. If you haven’t got any money to invest yourself, it may be an idea to look for someone else to invest. A “Silent Partner”. Silent investors, are not involved with the daily operations of the business. By looking for several investors, you’ll be able to split the initial investment and then share profits ongoing.
Investors will only choose a business investment they think will be worthy, one which has growth potential. Therefore you need to prepare an excellent business plan and choose a business that you believe will be resilient.
A Summary of Zero Cost Franchises and Business Without Cash
There are many choices when it comes to running a business or franchise with minimal costs. The important thing about getting into business ownership is choosing something you’ll enjoy. With any type of business, if you can see yourself doing it and enjoy it, there’s no reason why it can’t be a success. Business ownership comes with many challenges, but franchising means you’ll be in business for yourself but not by yourself. A fully supported sector, help is there if you need it, including finance. The British Franchise Association is the self-regulatory body within franchising for the UK. And the bfa have many member banks which are actively involved with franchising.
If you’re looking to get into business ownership but have little money to invest, there are many low cost franchises, and many routes you can take with minimal cash on your part.
Explore franchising at Franchise Planet and discover a world of franchises.
Investing in a Franchise – Frequently Asked Questions
Zero cost franchises are businesses where you require no upfront investment. The franchisor will usually make their money by way of royalty fees ongoing. The most common types of zero-cost franchises are home based and internet based franchises, where minimal expense is incurred by either party. So the zero cost figure makes the opportunity stand out as attractive, but in the same manner, suspicious. Explore each opportunity carefully before committing.
All businesses need money to run, whether they’re zero cost franchises or not. You will need to spend money on marketing the business locally and finding clients. This is why it is important to have working capital set aside. Although with some types of franchises, owner operated businesses, clients pay at the time the service is carried out, taking in money from day one. You need money to run a business regardless of the initial investment figure.
Home based and internet based franchises are the most common types of sectors that will include opportunities that claim to be zero cost. Usually the franchisor will make their money through ongoing royalty fees – ie royalties for continued access to the brand name. This might be a fixed figure or it might be variable percentage. To understand what you can expect to pay, many van based franchises like oven cleaning, coffee and signage, the typical fixed royalty fee is between £250 and £350 per month. Some charge more, some charge less, and others a variable figure based on turnover or sales.