How to budget for opening a franchise

Opening a business can be a rewarding, but risky experience. You can sink a lot of time and money into a new business venture, and if it doesn't quite get off the ground, it can leave you in a difficult position.

If you want the opportunity to own a business, but want to mitigate some of those potential risks, starting a franchise location can be the right move. It's important that you first understand what personal costs will need to go into joining the franchising industry and to budget your resources accordingly. Some of these costs will include:

  1. Franchise, legal and accounting fees
    Purchasing a franchise will require fees up front in order to obtain the rights to that business. According to the Federal Trade Commission, these will generally include continuing royalty payments and potential advertising fees as well. The good news is these advertising campaigns are already designed and running, making them cheaper and instantly ready – that's not the case when you try to start a business from scratch. It might also be wise to invest in an attorney to help with this paperwork and acquiring licensing, which will incur additional costs.
  2. Location fees
    As a hopeful franchise owner, you should also be prepared to pay for your location. This will include rent, security deposits, insurance and possibly even parking or renovation charges if need be.
  3. Equipment upgrade fees
    Depending on the sector that the franchise is in, there will likely be equipment upgrades to help operations run more smoothly. Technology has been evolving at an overwhelming rate, which has provided much-needed machines and programs that can make running a business easier and more profitable. To get the benefits of these advances, however, you'll need to be willing to invest in updating their industry equipment when existing models become obsolete.
To remain competitive, franchises must continually update equipment to take advantage of the newest technologies.To remain competitive, franchises must continually update equipment to take advantage of the newest technologies.

The exact financial plan you will need to follow depends on the business you buy and the market you're in, but working with an attorney or financial adviser would be a good place to start. Talking to existing franchise owners in the area as well can help provide a better idea of what your business costs will be like for that location.When working to budget for the costs of a franchise, it is important to remember to plan for several years ahead, as it can take some time for profits to offset the initial fees. It's not enough to simply take out the loan or save for the startup fees – there should also be savings in place to help cover any unexpected costs or personal expenses that come up during the early stages of the business.

Equipment and franchise industry piece brought to you by Marlin Equipment Finance, a nationwide provider of commercial lending solutions for small and mid-size businesses. Marlin's equipment financing and loan products are offered directly to businesses, and through third party vendor programs, which include manufacturers, distributors, independent dealers and brokers in the security, food services, healthcare, information technology, office technology and telecommunications sectors.