When you first start looking for a franchise to own, the upfront expenses you’ll be responsible will be on your mind.
That said, it’s crucial for you to find out what your starting and ongoing expenses will be if you become a franchisee.
In this post, I’m going to list the major expenses you’ll have as a franchise owner. Because the more information you have before you sign your franchise agreement the better.
Starting Expenses for a Franchise Business
Let’s say you purchased a retail franchise business opportunity and are getting ready to open. You’re busy, and so is your checkbook. As a matter of fact, the leather cover of your brand-new business checkbook is already looking quite “weathered.”
That’s because you’ve been paying out thousands of dollars to architects, contractors, a sign company, an alarm company, and others in order to get your franchise business up and running.
In addition, there are fees associated with registering your business and creating your business entity.
Finally, there may be state and local fees required to start your franchise business.
Ongoing Business Expenses for a Franchise
When you’re the owner of a business, you’ll have an abundance of ongoing business expenses.
Now, you’re not expected to know what every one of them are, especially if you’ve always been an employee. That’s where good franchise research comes in.
For example, one of the most important parts of researching franchise opportunities involves calling and visiting existing franchise owners. And that’s when you can ask them about their ongoing expenses.
Let’s take look at a few of them, so you can get a general idea of what they’ll be.
1. Inventory
Most franchise businesses require inventory, and it will be one of your biggest expenses. The key is to only order what you think you’ll need. In this case, information is power, as your franchisor and some of the franchisees you talk with can help you estimate how much inventory you’ll need to have on hand.
2. Payroll
This is another large expense you’ll have if you end up buying a franchise that requires employees. And the more employees you have the higher your payroll expenses will be.
Again, your franchisor and the franchisees you talk with can give you an idea of how many employees you’ll need, along with some of the specific costs you’ll incur as an employer.
3. Marketing and Advertising
The marketing department at franchise headquarters will provide proven marketing strategies for you to use. Furthermore, in most cases, they’ll have pre-made advertising materials for you to use from day one.
Incidentally, you’ll be able to get real-time information from your fellow franchisees on what’s working.
Of course, marketing and advertising isn’t free, so make sure you don’t forget to add these items to your list of ongoing expenses.
4. Rent/Utilities
If the franchise you buy requires a commercial space, you’ll have a monthly rent payment. In addition, you’ll be responsible for all of the utility payments.
Tip: If you live in an area of the country that experiences seasonal temperature swings, your utility bills will match those swings. Make sure you budget accordingly.
5. Loans
If you’re like most people, you obtained a small business loan for a portion of your upfront costs when you purchased your franchise. That means you’ll have a monthly loan payment to add to your expense structure.
The good news is that your loan payment won’t go on forever. As a result, when you’re done paying it, your expenses will decrease, meaning more money for you.
In the end, owning and operating a franchise business can be a wonderful thing.
And while it’s true that there are lots of expenses, as long as you make a smart choice on a franchise to own, they’ll be significantly less than your sales numbers. And that’s the goal.
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