Budgeting for Your New Franchise Business
If you’re planning on opening a franchise as your next business investment, you’ve got a lot of opportunities for stable long-term income, even if you have no intention of managing the location directly. Franchises are known for their built-in audience and existing supply line structure, so they are easy to oversee from a distance once you have processes in place and good management hired. At the same time, they’re also great for hands-on owners, especially new ones. The same features that make it easy to train in a manager so you can tend to other investments also make it easy for new owners to learn how to run their companies. As a result, they appeal to many kinds of investors. They do tend to take a lot of capital to open, though, and that’s why it helps if you have a plan for franchise financing.
As a general rule, you’re going to need to buy supplies and equipment for starting, as well as a franchise license. If you don’t already own commercial property to open in, you’ll also need to either buy a location or lease one from a property owner. Depending on how long you are in setup, this means you’ll also need capital for rent and utilities during your setup phase. As you hire your opening staff, you’ll also need to be able to pay them for the work they do in advance of opening, and you’ll need a budget for your first few months of marketing.
Since the initial startup expenses are quite high for most franchises, many owners rely on franchise financing to cover the majority of the costs. That allows them to put up a fraction of the working capital needed to open while drawing on a large sum from the loan to meet those initial purchases and opening operational expenses. That means they need to figure the cost of the loan into monthly overhead projections, along with ongoing costs for labor, supplies, advertising, and any property payment or rental costs. If the equipment was purchased on a loan or leased, it may add additional expenses. You also need to budget for utilities.
Whatever budget you set before opening will be an estimate, based on averages in the industry. To make sure your future projections are accurate for your new business, you’ll need to adjust estimates for costs like utilities and supplies according to the use patterns you see in the first few months after opening. If your business volume changes, you’ll also need to keep adjusting them to keep your projections in line with your budget capabilities, so you can pay off your franchise financing loan quickly.