Having the money to purchase a franchise is not enough. You also need money for those other expenses that often only crop up once your store is open.
Many new franchisees have found themselves in trouble because they failed to consider all the expenses associated with opening a franchise store. If you want to be on the safe side, budget for all the following expenses:
More equipment
Many franchises have stores of different sizes and configurations available for purchase. The thing is, the earning potential of a store is often limited by its size. For example, the number of customers you can serve will be limited by the number of restaurant tables, nail technicians or service bays you have.
Franchisees often opt for a small store because that’s what they can afford, then discover that they need to find larger premises and buy more equipment in order to earn the income they’re aiming for. So, before you buy, know exactly what the earning potential of your specific store is.
KEY TAKEAWAY
Make sure that you take all potential costs into consideration when budgeting for a franchise. The cost of the franchise is only part of it.
Operating capital
Some franchises break even within six months. Others take 18 months. Regardless, though, it will take some time for your store to be able to sustain itself. In the meantime, you will need to be able to provide the money needed to keep the business afloat. The last thing you want to do is run out of stock when your business is still very new. Customers will never come back.
Living expenses
If it takes some time for your business to break even, it’s going to take even longer until you can pay yourself a decent salary. So, you’ll need some savings to live off of while your store gains momentum. You can cut down on your spending, sure, but you’ll still have some expenses that can’t be avoided. Will you be able to carry yourself for a year?
Emergencies
Things go wrong. And, thanks to Murphy’s Law, they tend to go wrong when you can least afford the hassle or expense. Many new franchisees, for example, were forced to buy expensive generators when load shedding was implemented a while ago, simply because they couldn’t afford to close their doors while the competition remained open for business.
Marketing
One of the advantages of being part of a franchise system is that you benefit from the marketing efforts of the franchisor. However, many new businesses market independently on a local level when they open.
This might mean running specials and competitions, handing out flyers, or hosting a grand store opening. Whichever marketing initiative you opt for, though, it’s going to cost you money.
TAKE NOTE
Be very careful when figuring out if you have the money necessary to purchase a franchise. There are a lot of ‘hidden’ costs that aren’t included in the sticker price of a franchise store. Most importantly, you need to be able to carry yourself until your store starts to take money.
Source: Standard Bank BizConnect www.bizconnect.standardbank.co.za.
