There are a number of start-up and ongoing costs associated with setting up and running a franchise, including:
- The initial franchise fee – this is what you pay the franchisor to use its business sytems and trademarks.
- Opening fees – these include fees such as training-related expenses, business permits, etc.
- Capital investment – securing a location and/or equipment in accordance with the franchise package specifications, which could entail hiring contractors for construction and remodeling. You may have to buy start-up inventory. There will be other, not-so-obvious costs too, such as insurance, property taxes, accountant and legal bills, and even zoning fees.
- Working capital – the money you’ll need to survive the initial start-up phase, including training, until business revenues begin to grow. You may have to pay employees before the business makes any money.
- Continuing fees – in the form of royalties, management service fees, advertising and marketing.
The FDD should includes charts and information about estimated start-up and ongoing costs for your individual franchise. But, how will you pay for all this? Some franchisors offer a financing package, but most likely it will on the franchisee to fund the franchise. For many franchisees, this means seeking loans from financial institutions. To secure a financing, prospective franchisees need to present a credible business plan.
Although creating a business plan sounds complicated, it doesn’t have to be. Most business plans follow a fairly uniform format, which you can find online or in business books. And after you’ve pulled together all the raw information you need, you can hire a professional writer to polish the content for final presentation. Some franchisors provide help with business plans too, though there are legal liabilities associated with franchisors making any projected earnings claims for inclusion in the business plan.
Much of the information needed, such as the company’s management structure, market demographics, day-to-day operational procedures, a marketing plan, start-up and ongoing costs, will be supplied to you by the franchisor in the FDD. View this page for detailed information on how to create a business plan for your franchise.