Two of the major factors you need to pay close attention to when opting in for your franchise are the franchise fees and royalties. The fees and royalty need special attention because it's what crafts the majority of the budget in your business plan. If you're wondering how to budget these expenses effectively, here are some things to consider. These tips will help you budget for your fees and royalty while also considering potential fluctuations.
Importance of Financial Planning for Franchise Costs
Before starting a franchise, you should ensure your financial planning is in place. You should understand the costs associated with the fees and royalty, so you achieve long-term success and turn over a profit faster. Here are a few reasons you should consider financial planning when estimating your costs.
Realistic Assessment: When you plan your finances, it allows you to assess your capacity. You can then know if you can afford the fees, ongoing royalties, and other overhead expenses. You should also look at your savings and see if it's feasible to put up a considerable amount upfront or if you need that for other purposes.
Resource Allocation: When you plan well, you can allocate your resources and ensure there is capital to cover all aspects. This includes various expenses such as staff training, marketing, purchasing new equipment, salaries, and more.
Risk Mitigation: When you budget well, you can also identify financial risks and keep aside funds that can take care of these circumstances. The last thing you want is to fall upon difficult times and not be able to sustain the business.
Guide on Budgeting for Franchise Fees and Royalties
When budgeting for franchise fees and royalties, you should make sure you follow certain steps and set your business up for success. Read on for some important steps that will help guide you when budgeting.
Research and Due Diligence
You should start by looking at other franchises and see if the fees and royalties change as per the brand. You can also look at the business's growth and financial potential to assess if the business is viable for the long term.
Create a Comprehensive Budget
You should then identify all costs that are involved in setting up the business. This includes franchise fees, real estate costs, staff training, legal fees, and other equipment costs. You should also ensure your budget has funds for ongoing expenses, such as staff salaries, royalty fees, inventory, and miscellaneous operational costs.
Assess Your Financial Capacity
When budgeting, you should also ensure you look at your personal finances. This includes your savings, overall assets, and other loans that you may have to take on. If needed, consult a financial advisor to assess how much you can invest without getting in too deep.
Consider Potential Fluctuations
As with any business, there will be fluctuations in revenue due to market conditions and other seasonal variations. It would help if you prepared yourself by setting aside funds in your budget. This will take care of any financial setbacks.
Review Franchise Disclosure Document (FDD)
Before signing an agreement, you should ensure you examine the franchise disclosure document (FDD). This should include details about all the expenses and fees you'll be liable for. Make sure you consult your accountant and get an understanding of your overall obligations.
Negotiate With the Franchisor
When finalising the agreement, make sure you try and negotiate with the franchisor regarding the franchise fees and royalties. Some franchisors even offer payment plans or reduce the fees if they feel you're committed to the business long-term.
Monitor and Adjust the Budget Regularly
You should also make it a point to monitor the financial performance of the franchise regularly. Look at the budget you've set aside and compare it with your current performance. If it's falling short, adjust it so you maintain stability and take care of unexpected financial challenges.
Spend Your Franchise Pennies Wisely
When investing in a franchise, you should budget for franchise fees and royalties. If you budget right, you can take care of unexpected expenses and sustain your business even during difficult times. You should also pick the right franchise as per your expertise, as this will play a crucial role in its success or failure. When looking for prospective franchisees in the UK market, check out our list and pick the one that suits you the best.
Avoid investing in businesses that seem successful; however, you're not passionate about it. This will spell doom from day one, and you may never break even with the business. Follow these steps when negotiating your franchise fees and royalties and budget well to stay financially viable.
If you don’t have a franchise yet, what are you waiting for? Be sure to browse our selection of franchises to get started!
Shaun M Jooste, Point Franchise ©