So, you’re ready to open up a franchise location. Congratulations! Doubtlessly you’ve spent a lot of time thinking about the commitment, the lifestyle change, and of course, the excitement of starting a lucrative and rewarding new career path. However, have you considered the maximum dollar amount you’re willing to spend at the beginning?

This is a tricky question, and many may answer it without fully realizing the ramifications. It’s easy to do a few simple calculations and come to what we think is an accurate and reliable number, but have you thought everything through? Before you take the plunge, make sure you’ve decided on your spending limit so that you can make your franchise location a success, and avoid financial pitfalls. Here’s how.

 

IDENTIFYING THE UPFRONT COSTS

Different franchises have different requirements when it comes to upfront costs, and this should be the first of the many criteria you need to analyze before making a move. Extremely large franchises tend to charge a small – or large – fortune, while others are far more flexible, which is great if you’re just starting out. In any case, the upfront cost covers only liquid capital, which covers the rights to open a franchise location.

It’s important to remember that liquid capital cannot be borrowed when starting a franchise location, which means it must be in your possession from the start. From there, you must analyze other factors such as franchise fees, percentages, etc. 

 

THE FRANCHISE FEE, EXPLAINED

Franchise fees cover the cost of access to branding guidelines, strategies and training, all of which play a vital role in aiding your success. Thankfully, this is a one-time payment which takes care of the basics, so you can get started. Franchise fees, like any other fee, depend largely on the franchise in question, and can vary in amount. 

 

FRANCHISING PERCENTAGES

Part of the duty of any franchisee is to pay their franchisor a percentage of money earned through your location. This is part and parcel of the much larger business relationship where both sides work together for mutual benefit. The franchisee gets access to invaluable assets and information directly from the franchisor, who in turn earns a cut of the revenue.

Typically, these are paid on a monthly basis, which is fair play, considering that franchisors constantly revamp and optimize their marketing strategies on a consistent basis. These percentages can be looked at as small investments for someone else’s hard work and due diligence. On average, franchise fees land somewhere in the 5% to 7% range, though they can go higher. If the number is too much, you may wish to consider another franchise to go with.

 

UNDERSTANDING TOTAL INVESTMENT

Total investment represents the lump sum of your own costs to run and maintain your franchise location. These are your responsibility, and part of the entrepreneurial side of being a franchisee, so they’re not particularly surprising. However, they do require some pre-planning and forethought before opening your franchise location.

Keep in mind such costs as property rentals, hiring of staff, and supplies/inventory spending. There are always opportunities to cut costs without sacrificing quality, so you’ll need to be clever here, but don’t assume things will simply fall into place when you eventually move to that stage of the franchising game. Always walk in with a plan, and some numbers to back your play, or you may find you’ve bitten off more than you can chew. Of course, profits will offset these costs over time, at which point it will turn into an issue of regular upkeep and maintenance. When you’re just starting out, however, they can make or break your plans.

 

MIND THE ECONOMIC CLIMATE

There’s no rule that says you shouldn’t open a franchise location during a rocky economic period. On the contrary, many restaurant franchises experienced excellent growth during these periods, provided they were able to adjust their spending habits and business strategies accordingly.

However, when you’re just starting out, you should have a clear understanding of how volatile the market is. If the waters are choppy, you don’t need to stay on dry land, but you should invest in a bigger boat to tackle the waves. Leaving yourself some extra financial elbow room can go a long way towards avoiding any headaches, while achieving your goals much faster. Don’t get discouraged, but don’t walk in feeling overly confident, either. 

 

CONCLUSION

Successful entrepreneurs ignore the voices in their heads telling them they won’t succeed, but they do listen to the ones who tell them to make sure all details are in order before moving ahead. It’s one thing to be confident, but carelessness is something else entirely. Thankfully, it just takes a bit of thought and planning to make sure you’ve checked off all the boxes necessary when deciding how much to spend on opening your franchise location.

St. Louis Bar & Grill has made franchising easy for willing and enthusiastic entrepreneurs. We want to hear from you, and your plans to turn your location into a massive success! We’ll work with you to make sure you’re ready, and provide all the support you need as you move forward. Our model works, as evidenced by our continued growth, including our recent expansion into the U.S. market. Now’s the time to become a St. Louis franchisee!