Buying a franchise: 3 Financial Questions
/Owning a franchise can be a wonderful opportunity and an enjoyable experience. But it’s a business with money involved, so you need to be clear on how the money works. As a franchise owner, your income depends on the financial success of the business. So it’s important to get an indication of how the bills can be paid and how much you can make.
To help you with this, here are 3 financial questions to consider.
- How much will it cost to start the business? This could include franchise and training fees, equipment and fitout. You’ll also need enough money to cover expenses until the business is profitable.
- What will it cost to run the business day-to-day? For instance, rent, wages, materials costs, advertising, royalties, leases, phones, electricity, accounting and bookkeeping.
- What sales are needed to cover the costs? It takes time to build up the sales of a business, so be sure to find out how long it’s taken others to become profitable.
Some information to help answer these questions will be in the Disclosure Document, which a franchisor must provide. It’s also important to do your own research, for instance by asking existing franchisees, and getting professional advice.
Use this information to produce a budget and cashflow forecast. This will help give you an indication of whether you can afford the business, and can live on the income. A Franchise Accountant can help with this.
If your initial figures look reasonable, it’s time to dig deeper. Use what you’ve learned about the franchise to assess whether your expectations are achievable.
The financial side of running a business is really important and needs to have your attention. Even if you’re unsure about how to do this, the right advisers can help you get off to a solid start.
Remember…Buying a franchise can have significant financial consequences. That’s one reason the Franchising Code of Conduct states prospective franchisees must be advised to obtain independent accounting and business advice.