Estimating Your Start-Up Capital to Start a Franchise

One of the biggest challenges that you will face while starting a franchise is calculating how much money you will need as a start-up capital. Most franchises offer a guideline on how much money you will need and in what categories. Still, it is better to do your own calculations, as there are certain expenditures that vary according to the market. Use their calculations as a guide to jog your memory on things you might have forgotten or not be aware of.
• The first step is to separate the fixed expenditures from those that vary. For example, the money you pay as franchise fee and other related fees are fixed.
• The next big expenditure will be for real estate, if you have to open an office/site. This will depend totally on your local market and how well you negotiate a good lease term. Top franchises in the business offer site selection and lease negotiation assistance. There are also franchises that have relationships with various real estate agencies to help you scout a good location. So, you need to calculate the cost of engaging a real estate agent.
• The next expenditure will be on buying furniture and fixtures. If your franchisor doesn’t have any detailed instruction on how the location should look, you might be able to cut cost by using personal furniture such as sofa or chairs for the initial period. You will, however, have to pay for utilities like telephone, electric lines and other services. If you buy a home-based franchise, you can use your personal furniture, but don’t forget to get a separate phone line and a computer for business purposes.
• Check with local government officials whether you need special permits or licenses to operate the business. This is particularly important, if you buy a franchise from the food-related category. So, allocate money that you have to pay as license fee. Most franchisors offer help in this department as well.Construction or remodeling of your location may also have permit fees.
• In retail and food-related franchise opportunities, the interiors and the exteriors of the business are supposed to look according to the plan of the franchisor. So, a good amount of money will be spent on renovating and designing your site. The best franchises help out by providing recommended builders and a design plan.
• The next expenditure that you have to calculate is the money needed for buying equipment and initial stock, if you are selling something. Many franchisors offer equipment leasing or buying loans to people starting a franchise under them, so check out whether your franchisor is offering one. The money for initial stock can be included in the franchise fee. If you are in a business where you will need raw materials everyday (e.g. in food-related industry), then calculate the cost of buying the raw materials for the period till the business starts to pay for itself.
• Similarly, if you are hiring employees, calculate their salaries for the same time-period. Also, calculate the utility bills that you have to pay before the business starts paying for itself.
• Lastly, keep some amount in the emergency fund, because franchise business, though stable, is still a business. And in a business, there are chances that something can go wrong anytime!