One of the most important tasks you’ll have in
opening a franchise is creating a budget for your business. Having at least an idea of what it will cost you to not only launch the business but also run your franchise each month will help you ensure that you start out with ample funds to be successful.And if you plan to apply for a business loan or seek investors, you can be sure they will want to see a detailed budget for your franchise.
Start with Startup Costs
Your biggest cash outlay will happen at the beginning as you secure commercial property, remodel the space to fit your needs, buy equipment and supplies, and then hire employees.
Look into what it will cost you to rent appropriate commercial space. Consider that the more accessible and shopper-friendly the space, the more you’ll pay. If you simply need office space and not retail, look at more affordable office parks or rentals in less populated areas.
Consider buying used equipment in an effort to save a little money. Craigslist and business auctions are great resources.
You may need more inventory initially than you will on a recurring basis, so build that into your startup budget as well.
Look at Ongoing Costs
To build a budget you need to have at least an estimate about revenue, costs, and fees. Talk to existing franchisees and read through the franchise disclosure document to get details on projected revenues and profit margins, fixed costs, as well as variable and semi-variable costs like royalty and advertising fees.
Once you know all fees that the franchisor will charge you on a monthly or quarterly basis, you can factor in additional expenses:
- Monthly rent
- Inventory
- Payroll
- Marketing
- Software
- Your own salary
- Utilities (electricity, water, sewer, internet)
A Note on the Most Important Expense
Know this: you’re not guaranteed to make a profit in the first months of launching your franchise, so when you create your budget for the first year of operations, make sure it includes paying yourself.
Just as important as being able to pay your business debts is being able to pay your personal expenses. Your salary isn’t an option; it’s a necessity. You might start out paying yourself less if you have money in savings to help with your personal living expenses, and then increase your salary as the business can afford it.
Having a budget for your franchise gives you a clear picture of what it will take to launch and grow the business successfully.
Susan Guillory is the President of Egg Marketing & Communications, a marketing firm specializing in content writing and social media management. She’s written three business books, including How to Get More Customers With Press Releases, and frequently blogs about small business and marketing on sites including Forbes, AllBusiness, The Marketing Eggspert Blog, and Tweak Your Biz. Follow her on Twitter @eggmarketing.