Extra Costs 

Oh, the joys of running your own business -- and all the headaches that comes with it! Unfortunately, the franchise fee and the royalties won’t be the end of your expenditures. Running a business isn’t without its costs, and if you’ve never managed your own business before, some of them might take you by surprise. 

Of course, the fees you pay to the franchisor should be laid out clearly and explicitly -- no surprises there. But when you’re budgeting for your first few months, you want to make sure you have enough money to cover your costs and support yourself while you establish your franchise. It will take time -- sometimes more, sometimes less -- to break even. You’ll have to recover your initial costs before you can even begin to think of a profit margin. 

For that reason, it’s important to have a realistic budget going into the business. Here are some of the expenses you’ll want to keep in mind (in addition to your franchise fee, royalties, and any other costs paid to the franchisor). 

1. Marketing 

Advertising costs. Even if you fall into the category of franchises where the franchisor does the marketing, you’ll have to cover your share of the expenses. If the franchisor doesn’t do the advertising, you might be surprised at the price of newspaper ads, radio spots, and the like. Do yourself a favour: look into these costs beforehand and budget accordingly. 

2. Premises 

Obviously, the first thing any business needs is a place to operate. You may purchase your location, in which case you’ll have to negotiate a loan, or rent it. Either way, you can expect significant monthly fees to go toward supporting your location. Be careful with your selection: you don’t want to find yourself paying exorbitant rent, but on the other hand, there’s no sense selecting inexpensive premises in a poor location. Y our goal is to find the best location you can for the lowest price.  

3. Staff 

Depending on the franchise, you’ll almost certainly have to hire staff right away. Some franchises will require more staff, some less. Often the payment policies will be established. Keep in mind that your employees expect to be paid regardless of how the business is going. If salary is left to your discretion, feel free to start at a lower wage and offer raises or bonus incentives as the business succeeds. However, you will have to pay your staff according to local and national law, as well as the franchise policy. You may also have to purchase uniforms on their behalf. 

4. Equipment 

Again, depending on the franchise, you may need more or less equipment. Most franchises, however, will require some. A cash register, desks, food preparation equipment, and clothing racks -- all of these constitute fairly hefty expenses you must take into consideration. The franchisor may or may not be able to help with these purchases, or have secondhand equipment available for a reduced rate. Look into this before purchase.

5. IT and Phones 

You will definitely require a phone line. That means a phone bill, as well as the cost of the actual phone. Beyond that, depending on your franchise, you may require an internet connection, computer equipment, alternate phone lines, voice mail, or any other numbers of technical services that result in monthly bills. 

6. Vehicles 

Some franchisees may manage to dodge this expense completely, but if you travel frequently, you’ll either have to invest in a company vehicle or rack up miles and petrol fees on your own car. If your employees are required to travel, you may have to invest in company vehicles on their behalf. Failing that, you will owe them mileage and fuel allowances. 

7. Premise Expenses 

Leasing or owning a building incurs other expenses as well: electricity, plumbing, maintenance, housekeeping, security systems and/ or alarms, heat/ air-conditioning, and the like. Make sure you have a realistic expectation of these costs. 

As you can see, franchising unfortunately incurs more costs than the initial franchise fee. It may sound like an overwhelming amount, but the key is to budget. Make sure you can afford these fees before you sign the franchise agreement. Expect to run short your first few months. Seek out financial backing, and have a realistic idea of your expenses and income. 

If you can stick to these rules, what at first seems like a financial disaster may quickly transform into a gold mine.