Expanding Your Business—What’s the Real Cost?

Growing a business is exciting, but it’s also a decision that comes with significant financial implications. Many business owners assume that direct expansion is the natural path to growth. In reality, it’s a strategy that demands substantial capital and exposes you to higher financial risk. Franchising, on the other hand, allows you to scale your brand while leveraging the investment and commitment of franchisees. Let’s take a closer look at the numbers and why franchising is a smarter approach to business expansion in Australia.

The Cost of Direct Expansion

Expanding through direct ownership means taking on every financial and operational responsibility. This includes securing premises, purchasing equipment, hiring staff, and managing marketing campaigns. The financial burden quickly adds up.

For a mobile service business, a business owner looking to expand must cover:

  • A vehicle: $30,000
  • Tools and equipment: $3,000 - $10,000+
  • Staffing: $60,000
  • Signwriting: $2,000
  • Uniforms: $500

*Total direct expansion cost: $95,500 - $102,500 per unit

For a retail-based business, direct expansion requires even more capital, covering:

  • Commercial lease: $40,000
  • Fit-out and signage: $100,000
  • Stock: $50,000
  • Staff: $70,000
  • Launch marketing: $15,000

*Total direct expansion cost: $280,000 per location

Beyond the initial capital investment, you’re also on the hook for ongoing costs like wages, annual leave, equipment replacements, and lease obligations. Expanding this way means taking on all the financial risk while managing every aspect of multiple locations.

Franchising: A Lower-Risk Growth Model
Now, let’s compare this to franchising. Instead of investing your own capital into each new location, you license your business model to franchisees who invest in their own setup. This shifts the financial risk away from you while generating revenue through franchise fees.

For a mobile service business, a franchisee covers the same costs as a business owner, plus an added franchise fee:

  • Vehicle: $30,000
  • Tools and equipment: $3,000 - $10,000
  • Signwriting: $2,000
  • Uniforms: $500
  • *Franchise fee: $40,000 (paid to franchisor)

*Total franchisee investment: $102,500 - $109,500

For a retail-based franchise, the franchisee funds:

  • Commercial lease: $40,000
  • Fit-out and signage: $100,000
  • Stock: $50,000
  • Staff: $70,000
  • Launch marketing: $15,000
  • *Franchise fee: $40,000 (paid to franchisor)

*Total franchisee investment: $315,000

The key difference? As the franchisor, you don’t carry the financial risk. Instead of spending $280,000+ on a new retail location, you actually receive *$40,000 in franchise fees. Your franchisees take on the operational costs, reducing your overhead and allowing you to grow without overextending yourself.

Better Cash Flow, Less Risk, Faster Growth

Direct expansion ties up cash flow, requiring constant reinvestment and significant financial backing. Franchising, however, generates upfront capital from franchise fees while shifting operational costs to franchisees. This allows you to expand faster without the financial strain of funding each location yourself.

Beyond financial advantages, franchising also reduces the burden of day-to-day management. Franchisees are highly motivated to ensure their business thrives, leading to better performance and less reliance on your direct oversight. You focus on brand growth and system improvements while franchisees handle local operations.

*All financial data is given as a guide only - our recommendations may vary.