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Low investment franchises in Portugal: a viable and profitable business

26 de August, 2019

Low investment franchises in Portugal: a viable and profitable business

Reading: 9 min

Crisis for some… opportunity for others! Statistical data point to an increasing flow of Brazilians emigrating to Portugal in order to escape from the violence in Brazil, as well as from the unstable political-economic scenario of the country.

One of the most striking features of this current “rediscovery” of Portugal is the fact that many of these Brazilians are highly qualified professionals, former executives, entrepreneurs, pensioners, investors or holders of their own income in Brazil or abroad.

And since they decide for Portugal, many see an attractive scenario for the development of their own business. Not only for the sake of the national market itself, but also because of his own personal desire.

Some are native entrepreneurs, others are qualified professionals who want to walk a new path that will provide their livelihood. Or people who have accumulated resources throughout their career and now want to realize an old dream or even retirees who still feel fully capable of maintaining an active life.

And in this context there are currently opportunities for all profiles and pockets, including franchises in Portugal of low investment for those more conservative and/or who have a more restricted initial resource at their disposal. Check out more details below.

Low investment franchises in Portugal: new business x consolidated franchise

For those who are willing to undertake in Portugal, the main alternatives are:

1. invest in a business of their own, starting from scratch, or;
2. Open a franchise that replicates an existing business model.

Naturally, both options present positive and negative points.

As a rule, investing in a new business requires a deeper market study, seeking to understand:

  • The consumption characteristics of the local trade, i.e. the culture in which it is located;
  • Whether there are microcommunities or microcultures in relation to consumers;
  • What is the ideology of the market and what are the social-economic standards of the place.

However, this requires more time and money, as well as increases the entrepreneur’s risk. On the other hand, a new business gives the entrepreneur the flexibility to position himself in the market more freely.

Already investing in a franchise usually presents as the main disadvantage the fact of being “tied” to the strategy of the franchisor. However, it is a safer business where “the wheel has already been invented”, slowing down the risks and exposure of your time and money, because the franchisor already has control of the market and knows where and how to position himself.

Talking about franchises

Once you have made the decision to become an entrepreneur in the franchise business, you will need to understand a little about what this area is all about, what the costs are and what the responsibilities of each party (franchisor and franchisee) are. This business model can be used in the most diverse sectors of the economy as well as in all company dimensions, as long as it is replicable.

In general, a franchise is a pre-existing business where the franchisor grants the franchisee the right to use its name and business model in return for financial compensation (royalties and/or fixed fee). The franchisor often forces the franchisee to adopt a number of operational policies that to maintain a standard level of quality associated with its brand.

Remuneration of the franchisor

As mentioned earlier, the franchisor’s remuneration format can be based on the following models (separately or jointly):

1. Royalties, which will be a percentage over the business income;
2. Fixed Fee, which is a monthly fixed fee that may vary by billing band;
3. Advertising cost, which is usually a percentage of business revenues (usually managed centrally by the franchisor).

Main costs of the franchise

In addition to the remuneration of the franchisor, there will be the traditional costs of companies that depend on the size of the business, as well as the area in which it is employed. Among the main expenses, we can list the cost of renting space, water, energy, gas and telecommunications bills, labor, cost of raw materials and support services, working capital (working capital) and, finally, taxes.

But watch out! Additionally, there are other costs that are intended for the franchisor and the business, and should enter the profitability account of this investment:

  • Right of entry – this is an initial fee that is paid directly to the franchisor regarding the right to use the trademark and the initial training and capacity building;
  • Investment in works, equipment and furniture – although present in a proper business, in the case of franchises, the franchisor may demand the origin of the same, and may supply the same himself (obstacle of the lack of freedom);
  • Bonds – eventually, bonds may be requested by the franchisor and by the owner (the landlord) of the property that will be rented.

Finally, you should also pay attention to VAT (Value Added Tax), which is levied on the consumption of goods and services. This is because often the values of right of entry and initial investment are passed without VAT being included, so attention needs to be paid to this point so that it does not have surprises at the end, and could have an impact of up to 23% more on your investment account.

The franchisor often omits this starting point not out of bad faith, but because he considers that you will be able to refund the VAT by offsetting it, the result of the revenue from the start of the business. The big issue is that you have to consider this amount in the initial disbursement before you can be reimbursed.

Learn also how to invest in real estate in Portugal and have above-average returns.

What is the best franchise option?

There is no general and unique answer to that question.

The decision on the best franchise option should not only be based on the numbers presented by the franchisor, but also on the tuning of the business with the entrepreneur’s profile. There’s no point in wanting to open a business in the aesthetics business if this is not your beach!

You should also evaluate the characteristics of the business such as: need for teamwork, time of dedication, attendance to the public, people management, etc.. It is important to check whether these characteristics converge with your objectives and disposition.

Seek to explore the franchisor’s experience by asking questions and try to schedule a meeting with a franchisee from the network so that you can get a sense of the reality of events in terms of the franchisor’s service and support, the estimated turnover and the expected expenses.

Additionally, during the decision process, you should take into account the following aspects that are presented by the franchisor:

1. A good business plan, well grounded in previous experiences and with dimensions similar to those proposed;
2. Good market intelligence in terms of geographic positioning, analyzing population density, operating radius and competitors;
3. Good planning regarding the training of your (business entrepreneur) and your team, as well as periodic training;
4. Good advertising strategy! This point is not usually delegated to the franchisee, so demand a good return since you will be paying for it.

We also suggest that you draw up a table comparing the main financial indicators, namely:

  • Business profitability – net profit margin;
  • Annual free cash flow (free media) – cash flow generation capacity;
  • Net Present Value (NPV) – how much the business will be worth at the end of the operation (use the same number of years for this analysis);
  • Pay-back – how long the business will have paid back, i.e. how many years it has had back the amount it initially invested.

Golden Visa or D7 Visa? See which of the two visas best fits your profile.

Low Investment Franchises in Portugal: a good option

This is a very interesting option not only for entrepreneurs who do not have high availability of capital, but also for those people who have just arrived in Portugal and are not yet willing or afraid to make large investments.

Contrary to what you may be imagining, although the business potentially does not bring a high monthly return value, franchises that have low investment value usually have excellent financial indicators, such as:

  • You can have a good net profit margin because they are leaner operations;
  • The amount you initially invested may return to you in a shorter period of time than the largest transactions, and you may easily have the pay-back with up to one and a half years of operation;
  • Due to the low amount invested and with great potential to have a fast pay-back, you will be able to multiply the amount you have constantly invested.

In this type of operation, because it is a lean operation, you should be careful with the fixed costs of the operation, because they are sucking your sweat!

Therefore, be very careful not to have a great value of renting space, not to have excessive consumption in the basic bills of energy, gas and water, be careful with the amount of people you will be hiring and with their productivity, and finally, attention that in these cases can be adopted the remuneration of the franchisor through the fixed fee.

You have to keep a close watch and get your hands on it…

In every business we should have the philosophy that “the eye of the owner who fattens the meat”.

This is one of the demands of the franchise market, where it is imposed by the franchisor that the franchisee follows closely its business. But when we talk about franchises in Portugal with low investment value, besides the “owner’s eye” it will be necessary for the franchisee to literally “get his hands dirty”, not hiring extra managers and increasing labour costs.

Examples of franchises in Portugal with low entry value

  • DS Crédito (5 thousand €) – a business based on credit intermediation that provides individuals and companies with a personalised and independent advisory service in all types of bank credit operations, advising and presenting the best and most advantageous financing solutions, as well as the lowest monthly instalments for their loans;
  • DS Seguros (5 thousand €) – a business based on insurance mediation that provides individuals and companies with a personalised and independent advice service in all branches and types of insurance;
  • Grab & Go (0 €) – concept of automatic stores, open 24 hours a day, every day of the year, offering meals and hot drinks, appetizers and snacks, cold drinks, chocolates and non-food products;
  • House 360 (€4,500) – mediation and management of works from construction to urban regeneration or simple refurbishment, acting to obtain various budgets and even to the permanent monitoring of the activity and behaviour of the executors on site;
  • Max Finance (1 thousand €) – aimed at individuals and companies, it provides an independent credit and insurance intermediation service, based on the Remax Group’s extensive experience in the real estate market.

Are you interested in low investment franchises in Portugal? Check out the next steps

First of all, it will be necessary to set up a company in Portugal. It is not necessary to be a national or a legal resident in Portugal for this purpose, as a rule it is sufficient that the partners are holders of a NIF (equivalent to the Brazilian CPF) and that they hire an accountant (accountant) for the company.

With the company incorporated, it will be possible to sign the contract with the chosen franchisor. As mentioned above, always keep in mind not only the numbers presented by the franchisors, but also the tuning of the business with your profile.

To choose and hire a franchisor, you can also count on the help of companies and/or specialized professionals who can assist you throughout the process, from the search for companies in which your profile fits, to the final negotiation of contract terms, ensuring greater security, agility and convenience.

Finally, we would like to point out that if you do not yet have a visa so that you can reside in Portugal legally, this process of contracting a franchise will also allow you (for you and your partners) the right to apply for the D2 Visa for entrepreneurial immigrants.

Now that you know how it is the process to open a franchise in Portugal of low investment, if you need qualified help, do not hesitate to contact us at Atlantic Bridge.

Article published on the Euro Tips website: https://www.eurodicas.com.br/franquias-em-portugal-de-baixo-investimento/

Author: Pedro Pessoa
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