Creating your franchise budget is one of the most crucial tasks you will need to do as a prospective franchise owner. It is important to have an idea of how much it would cost you to start and maintain your franchise business, so you can ensure that you have enough funds to run the business successfully before getting started.
Plus, if you intend to seek out a loan or look for investors, they will surely want to see a comprehensive budget for your franchise before putting their money into the business.
Begin With Startup Costs
You will spend most of your budget at the start of the business as you acquire commercial property, rework the space to suit your needs, purchase equipment and supplies, and recruit those who will be helping you run the franchise.
Find out how much it will cost you to get commercial space suitable for the business. Bear in mind that the more accessible and customer-friendly the space is, the higher the price you need to pay. If you only require office space, you may want to consider office parks (which are usually less expensive) or rentals in densely populated areas.
Go for used equipment in order to save on costs. You can find many of them on Craigslist or at business auctions.
Depending on the type of franchise, you may require more inventory when starting out than you will need over time. So, it’s important to factor that into your startup budget, too.
Consider Ongoing Costs
You need to have an idea of the revenue, fees, and costs to create a realistic budget for your franchise. Speak with existing franchise owners and go through the franchise disclosure document (FDD) to get information about the expected revenues and profit margins, non-variable costs, and variable costs, such as advertising expenses and royalty fees.
When you know all the fees the franchisor will collect monthly or quarterly, you then need to consider additional costs like:
- Inventory
- Monthly rent
- Marketing
- Payroll
- Software
- Utilities (i.e., water, electricity, and internet)
- And lastly, your own salary
A Few Words on the Most Important Expense
Note: There’s no guarantee that you will start making profits in the first few months of opening your franchise, so you need to factor in your own salary when creating the budget for the first operational year.
Being able to pay your business expenses is just as important as being able to cover your living expenses. So, your salary is a must and not something you can just ignore. If you have cash reserves to pay your personal expenses, you can begin to pay yourself less in the beginning and then raise your salary once the business becomes more profitable.
Creating a realistic franchise budget will help you know what it will require to open and maintain the business without any issues.
