Starting any company will cost you money. Okay, that’s a given, but even though getting into the franchise business may cost less than opening your own establishment— everybody has to budget in order to be successful. It’s true that when opening a franchise your odds of survival may be higher than those who are “doing it on their own,” so to speak; but, there are several other factors to consider paying for aside from the initial fees and other buy-in costs. Here’s how having solid budgeting skills, as a franchisee, will help your business stay afloat and keep your doors open.
The first factor to consider is your own personal ability. We all like to think that just because we love or are passionate about something that means we will be successful in that particular field— or moreover, running a business in that field. Unfortunately, that’s not the case. In fact, in 1985, Michael Gerber wrote a whole book about it— called the “The E-Myth.” Essentially, Gerber argues that loving something you do is not enough to have a thriving business. What it actually takes, according to Gerber, is the constant interaction of three varied, and, sometimes, conflicting skillsets:
1) The Technician: we’ve all experienced this, it’s the part of us who only wants do the aspects of the job that we love
2) The Manager: the ability to effectively and efficiently organize the business and keep it running on both the micro and day-to-day level
3) the Entrepreneur: the visionary who identifies potential successes and, then, leads the company into the future
Gerber disagrees with the notion that everyone whom opens a business is an entrepreneur; but, in fact, that a true entrepreneur is someone who not only has the three previously mentioned skill sets, but also has a successful business to show for it.
Gerber attributes failed businesses to those individuals who have one of the skillsets but not the others. For example, the owner knows their business inside-out (the Technician) but lacks the necessary skills to run the day-to-day operations (the Manager). One of these necessary skills in order to be prosperous is budgeting. These are the four big financial factors to consider when franchising:
The franchise fee: This is fee you must pay to pass go. If you want into the business, there’s no way around it.
Initial capital investment: Luckily, this aspect varies per franchise and industry. This cost includes the investments you need to make in order for you to fit the mold of the franchise. This could range from purchasing a franchise vehicle to outfitting a restaurant space. The franchisor will have a lot of this information for you, but you should also do your own research and ask current franchisees what to expect.
Working capital: Unfortunately, it’s not as easy as opening your doors in order to get business. Depending on the franchise, it can take six months to a few years to become a frequented or talked about company. In order to spread awareness and to keep your head above water, you’re going to need money. Franchisors should have a fairly accurate estimate in their Franchise Disclosure Document (FDD), but, again, it’s wise to ask another franchisee what to expect and what it will cost in order to breakeven. To be safe and smart, having a year’s worth of working capital in the bank is a great place to start.
Ongoing fees: Yes, there will always be more. Franchises come with a lot of perks, which cost royalty fees. This will vary by franchise, so ask ahead of time so you can plan and budget accordingly.
Having a sound and researched budget will save you from being sideswiped by expenses you didn’t think you would incur. Do your homework, make financial models and seek professional review to ensure that your budget and financial situation can account for both expected and unexpected costs. If you’re interested in learning more about what it takes to open a GYMGUYZ franchise, please feel free to call us at 1-855-GYM-GUYZ or visit us online at www.GYMGUYZ.com.