If you are a fan of bubble tea or boba tea, you may have heard of Happy Lemon. Happy Lemon is a beverage chain that has just recently come to America. The chain is no ordinary boba tea shop. This bubble tea franchise was started by the Yummy-Town Group, which was the original group to bring Taiwanese bubble tea culture to Hong Kong and Mainland China.
Since its founding in 2006, the franchise business has expanded to over 2,000 locations in 21 countries. The sheer size of its rapid expansion is attractive to many, especially as milk tea becomes more popular in the United States. If you are interested in franchising Happy Lemon or are simply interested in the brand, you have come to the right place. From this article, you will learn the background of the Happy Lemon brand, the advantages and disadvantages of owning a Happy Lemon franchise, the requirements and cost of a franchise, how to finance a location, and the profitability of current Happy Lemon franchises. We’ll cover the following topics in depth in this article:
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Happy Lemon was founded by the Yummy-Town Group, a company based in Taiwan. The Yummy-Town Group has a history of being in the know about consumer trends. They were the first to bring bubble tea culture from Taiwan to Mainland China and Hong Kong. Since 2006, they have provided salted cheese tea as part of their offerings in the Happy Lemon chain. The offering took off and has provided them with a large customer base who are fans of the product.
Undoubtedly, Happy Lemon has had great success in the beverage industry. They have managed to build out an impressive number of franchises through their business model. They have been in tune with their market and have allowed the brand to expand rapidly.
In terms of being a player in the beverage industry, Happy Lemon is now one of the largest players in the international beverage industry. They have a strategy to constantly invest in research and development so that their products remain new, innovative, and attractive to their customers. They provide specific care to their franchises and help them in a variety of ways.
They also pay attention to quality when it comes to their ingredients and supply chains, so you can be sure that the Happy Lemon brand is one to be confident in. This is true both from the perspective of the customer and the prospective franchisee.
Advantages of Owning a Happy Lemon
Getting into the beverage market with Happy Lemon may be a great idea. They are certainly a large player in the high-quality beverage market. As a franchisor, Happy Lemon pays a lot of attention to its franchisees, quality, and offerings. Together, Happy Lemon does its best to provide entrepreneurs with an attractive franchise opportunity in the beverage franchise space.
One of the first advantages of owning a Happy Lemon franchise is their investment in being an innovator. Rather than being a passive actor in the beverage industry, Happy Lemon constantly invests in its products and research and development. Doing so helps them stay on top of the industry by providing their customers with the newest and best products. Such examples as their salted cheese tea are representative of the effective results this strategy can generate.
Another advantage of owning a Happy Lemon franchise is the low overall initial investment. Since there is not a lot of sophisticated equipment required to run a beverage shop, the overall franchise cost is lowered for prospective franchisees.
A further advantage of Happy Lemon is that their franchising model allows you to choose from different size stores to fit the location you are trying to build. For example, if you are more limited on budget, a smaller size location might be ideal for you. Likewise, if you are trying to build a larger location and have your beverage store be a hub for the community, they offer specific plans for this model as well. This flexibility is certainly an advantage when considering the size of your investment.
Disadvantages of Owning a Happy Lemon
While there are certainly many attractive advantages to owning a Happy Lemon franchise, there are also some downsides to consider as you move forward in the decision-making process.
First, the fees paid to corporate can be somewhat high. The franchise fee is higher than some restaurant franchises, and the product offerings of Happy Lemon are centered around beverages. The franchise fee also differs by location, which can make initial cost projection difficult. Moreover, some of the ongoing costs remain expensive. These can be higher than industry standards, making Happy Lemon a premium brand to operate for prospective franchisees.
Another problem with being a franchise owner of a Happy Lemon franchise is the need to cater to a large menu. This can lead to operational and cost inefficiencies, essentially required by corporate, which end up making training much more difficult.
One of the successes of Happy Lemon has been riding the wave of boba popularity in the United States and internationally. However, many other brands and stores have risen to compete in the boba space. It is not immediately clear whether the success of Happy Lemon has so far been being in the right place at the right time or whether it is attributable to the uniqueness of their product. In either case, it is still a positive sign to see that they invest in the research and development of their product to continue to stay ahead of the competition.
It is important to weigh the disadvantages and advantages of a Happy Lemon franchise. Costs paid to corporate, having a large menu, and competing with other beverage firms are substantial disadvantages which you should weigh when picking out a beverage franchise or franchise in general.
Requirements for Opening a Happy Lemon
Now that you have considered the advantages and disadvantages of a Happy Lemon franchise, you might be wondering what the requirements are for a franchise application for a Happy Lemon location.
Starting with the financial requirements, you will need to have a minimum net worth in the range of $40,000 to $80,000 in order to open up a Happy Lemon location. This is a pretty accessible net worth range for most people. In order to calculate your net worth, you should start by calculating the value of all of your assets. This means things like houses, cars, or savings. Once you add the value of these assets, subtract your debt. This will equal your net worth. If your net worth is in the minimum range, you are in a good spot to qualify financially for a Happy Lemon franchise location.
There are also non-financial aspects of an ideal candidate that Happy Lemon looks for in their franchisees. You will need to meet these as well in order to have a competitive application.
Some of the aspects may be easy to demonstrate. These include being confident in your business venture and business activities, willingness to make good relationships with your local community through your business, being passionate about the brand, and being willing to make yourself a leader of your franchise.
While these requirements might generally be easy to meet, the next two might be somewhat more challenging. First, you need to be prepared to show commitment to your franchise location. Of course, making the investment and taking on the risk of opening a Happy Lemon franchise demonstrates a substantial level of commitment, but it does not necessarily entail what Happy Lemon means by commitment. They want franchisors who are actively involved in the operations of a Happy Lemon location. In other words, they are not looking for passive franchisees.
You might reflect on this requirement positively, as it means that Happy Lemon cares deeply about the image that they are putting out to the public. They care a lot about the functioning of franchises and the image that they portray to the public. In doing so, and by keeping this consistent across franchises, it improves the look of the brand to the broader public.
The final requirement is that you can financially support the investment you would undertake in establishing a Happy Lemon franchise. The Happy Lemon franchise cost is not necessarily small, so it is important that you know you are equipped to fund the investment. Financing options may also be available to help, but it might be a good idea for you to get an idea about the cost of starting a Happy Lemon.
Cost of Starting a Happy Lemon
Once you have weighed the advantages and disadvantages of starting a Happy Lemon franchise and see that you meet the requirements for applying, you might be interested in the cost of a Happy Lemon. Not the least of which reason is that Happy Lemon wants you to be able to cover the cost of the investment.
Starting with the first major cost of starting a Happy Lemon, you will need to review the initial franchise fee. The initial franchise fee is a lump sum fee that is paid upfront to a franchisor when a franchising agreement is signed between the franchisor and the franchisee. The new franchisee pays this fee to the franchisor immediately. Corporations use this as a mechanism for revenue, but this fee also supports some initial training and marketing.
The initial franchise fee for Happy Lemon depends on the size of the location you go with, ranging up to $40,000. In the franchise food of food and beverage locations, $40,000 can be somewhat high for a franchise fee. Although this will ultimately depend on the size of the location, this fee is certainly not ignorable.
While there are some costs not paid to corporate at the immediate beginning of the franchise, there are still fees a typical franchise has to pay to corporate soon after a grand opening. Usually, this happens monthly. These ongoing fees are known as royalty fees and advertising fees. A royalty fee is a fee paid monthly to corporate, usually as a percentage of gross sales. This fee is used by corporate as revenue to help them carry out their functions. An advertising fee is another fee paid monthly to corporate, also usually as a percentage of gross sales. However, the advertising fee is used more explicitly to help advertise for corporate and your franchise. So, there are some returns on the advertising fee you would pay.
For Happy Lemon, there is a royalty fee of 7%. For industry standards, this is quite high. Before you get sticker shock, however, it is important to note that Happy Lemon invests a lot back into R&D and its own supply chain quality control. Part of what keeps Happy Lemon ahead of the competition and such a rapidly growing business is its strategy to be innovative and high-quality. Your royalty fee might be higher to help corporate compensate for that.
Less is known about the advertising fee, but it is expected to be approximately 2-3%, which is low by industry standards. This would make the franchise very competitive in regard to this fee.
Yet, you might be rightly concerned about the total investment you will be making into starting your own Happy Lemon franchise. While this will depend on the size, Happy Lemon estimates that people spend between $250,000 to $500,000 in costs to open a location. The start-up costs of a Happy Lemon are pretty small relative to other restaurant and beverage franchise options. This might be a franchise to consider if you are looking for an affordable start-up franchise option.
Financing Your Happy Lemon Franchise
If you have read through the costs of opening up a Happy Lemon franchise and are worried about your ability to afford all of the investment costs upfront, you are not out of options. Financing has made it much easier for entrepreneurs to access funding to help start and continue their franchises, expanding their investment range opportunity and potential profit.
In certain cases, it makes sense to use financing rather than cash, as cash can be used more efficiently in a business or be used to pay you back. If you are looking for options for financing your franchise, there are many options, including SBA loans, term loans, lines of credit, and equipment financing.
The United States Small Business Administration (SBA) is a government agency tasked with helping entrepreneurs and small businesses survive and thrive in contemporary economic conditions. Part of their responsibilities includes overseeing a variety of loan and financing programs for small businesses. These programs are designed to provide low-cost borrowing to businesses in need. That means that for many small businesses, turning to an SBA loan is something that they will do after being denied a bank loan.
SBA loans often have low-interest rates for business borrowing and great terms. One of the most common SBA loan programs is an SBA 7(a) loan, which can be used for a variety of business purposes. If your small business needs to buy real estate, make a large capital purchase, buy a lot of inventory or equipment, or help stabilize working capital, an SBA 7(a) loan can help. SBA 7(a) loans work through a lender and provide them with guarantees on a portion of the loans.
As a result, lenders can be more confident that they will be covered from potential losses. Therefore, they can offer lower interest rates, which are more attractive to small businesses. The SBA also prohibits these lenders from penalizing small businesses for prepayment on loans. This makes the loans more affordable to businesses and prevents them from getting trapped in debt.
The SBA 7(a) program is not the only loan program designed to help small businesses. They also have a financing program that is geared towards franchisees to help them afford expenses like the initial franchise fee and other franchising costs.
If you are looking for more information, the SBA provides a whole host of materials and links on its website in order to help small business owners get the funding they desire. This includes links to loan applications and lender information.
You should be aware that SBA loans, while they have favorable interest rates and terms, are not the most convenient option for small businesses. They involve long processing times and a lot of paperwork in order to get one. Even then, you will have to get approved on more conditions than just a standard loan. Yet, if this is an option your Happy Lemon franchise needs to take, there is no need to worry. It can eventually provide you with cheap debt with a loan on favorable terms. This might make your decision to franchise and operate a Happy Lemon franchise cheaper.
While an SBA loan is not great for every situation, a term loan might help your Happy Lemon franchise instead. A term loan is an alternative financing option for your Happy Lemon franchise. A term loan is essentially a loan that infuses money into your business for you to be able to use for a variety of things. A term loan can allow your Happy Lemon franchise to pay off a large bill or be used for a big capital investment.
Term loans usually have a fixed-rate interest rate on the loan. A term loan can either be acquired from a bank or an alternative lender. While a bank may have lower interest rates, the processing times for a bank can be longer. In addition, the bank will likely do due diligence, requiring you to submit financial statements, a business plan, your business credit score, and possibly more.
If you are looking for a loan to help your Happy Lemon franchise earlier, you might consider an alternative lender (like Biz2Credit!). Alternative lenders have a shorter process for getting a loan and often do less due diligence. This allows your Happy Lemon franchise to start using that capital sooner. However, the interest rate on these loans will likely be slightly higher to compensate the alternative lenders for the added risk and less due diligence.
Term loans are usually used for short-term investments. This is because the interest rates on these loans can eventually make debt expensive. When used correctly, term loans can be a great option for your Happy Lemon franchise. Just be sure that the decision you are making is the right one for your business.
Line of Credit
You might be seeking a different kind of financing different from an upfront, singular loan. Maybe the option you are seeking for your Happy Lemon location is a line of credit. A line of credit is a different type of loan, where after applying, you are given a maximum credit limit. This allows your Happy Lemon to borrow from this credit limit as needed. This means that you do not need to draw down the full amount of the line of credit at one time.
As you take money out of the line of credit to help your business, you will owe money to a lender on that money. You also pay interest on that money as you pay it back over time. The interest rate for this type of loan is variable. This makes sense since the time that you decide to draw down on the line of credit will vary.
Banks and alternative lenders offer lines of credit. This can help your business get different interest rates or faster access to loans. A line of credit might be right for your Happy Lemon location to have on hand in the event you experience problems with your tea-making equipment and need to replace it on short notice. Or, you might have a large inventory that you need extra cash to cover. No need to worry, as having a line of credit can help you cover these small, unexpected expenses and working capital challenges. At the same time, this helps your Happy Lemon franchise manage its cash flow more efficiently.
Equipment financing is one of the most relevant types of financing available to you and your Happy Lemon franchise location. When you think about the equipment involved in a Happy Lemon franchise, it might amount to quite a lot. Having to make all those purchases at once might place you under financial strain. You should not let this limit you, however, as equipment financing is designed to provide you with an affordable financing option for equipment.
As it implies in its name, equipment financing is where you can take out a loan or lease specifically for equipment. For your Happy Lemon franchise, you might need to purchase machines in order to make tea or other beverages or cash registers at the front of the store. These costs might be high, so you might be interested in financing options.
The good news about equipment financing is that it is relatively cheap. This is because the equipment you purchase with the financing option is treated as collateral. Since the value of the equipment is likely high, the lender can be sure that they can recuperate the money they might lose on the loan if you default.
There are also several different ways to use equipment financing. One of them is called lease financing. With lease financing, your Happy Lemon franchise would lease equipment, like beverage-making machines, for some time and pay a lease on the equipment each month. After the lease ends, you choose between continuing the lease, returning the piece of equipment, or purchasing the equipment from the company that is leasing the equipment. This reduces the upfront cost of the equipment and allows your Happy Lemon franchise to get new equipment at the end of the lease if you prefer.
There is also a capital lease option. Similar to a loan, you lease the equipment, such as a cash register, for a while. However, at the end of the capital lease, your Happy Lemon store will own the equipment.
Your Happy Lemon franchise also can get an operating lease. An operating lease is where you strictly pay a lease to use a piece of equipment, like a refrigerator, and give the piece of equipment back to the company that is leasing it at the end of the lease.
There are a variety of financing options available to your Happy Lemon franchise. Since Happy Lemon does not offer financing through its corporate structure, you should consider your third-party options for funding if you are interested in financing.
Profitable is a Happy Lemon Franchise?
As a fundamental question for comparing the overall costs of starting and running a Happy Lemon franchise, you are probably interested in how profitable a Happy Lemon franchise is. Current estimates place the profitability of a Happy Lemon franchise at approximately $50,000 to $72,000. This may not seem like a lot of money, but it is fairly decent compared to the start-up cost.
You should also keep in mind that the exact profitability of your Happy Lemon franchise will depend on many factors, including the market you are operating in, how effectively you operate your location, and how much demand you are able to generate.
Opening a new franchise is not easy work. It takes hard work, dedication, and commitment. However, with the right approach, franchises can be a great way to open your own small business. Because franchises come with pre-defined operational instructions, a well-developed brand, and a series of products already proven to have some level of consumer demand, franchises are much more approachable for inexperienced or first-time business owners. They remove many of the key challenges and headaches that come with starting a business from scratch. However, as noted, additional fees and commitments to the national franchise come with these benefits.
As with any business, the key to opening a successful franchise is to do your research upfront. As you develop a business plan, your goal should be to understand the market in which you are considering opening your store in detail. Is there interest in the franchise brand in the market? How many potential customers (i.e. how large) is the market? What is the competition like in the market? Will you be able to stand out? All of these are important questions. Doing the groundwork upfront to answer these questions can save you a lot of headaches down the road and let you know if starting your intended business there will be worthwhile.
All-in-all, with the right approach and the proper amount of research, you can develop a business plan you can be confident. With this in hand, you could be well on your way to starting your own successful and profitable franchise. So, don’t stop here with the information we have provided. Start researching!
At Biz2Credit, we are dedicated to providing small businesses and their owners with the tools and resources they need to succeed and thrive. As part of this effort, we operate our Biz2Credit Blog, where we post brand-new content each weekday. So, please continue to check back here frequently for all our latest posts on news, trends, and events impacting small business communities across the nation.
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