Unexpected costs aren’t something any business owner ever wants to have to deal with, and with good reason: they can disrupt budget plans. Those pondering franchise ownership may already be aware of some of the common costs that franchisees are expected to cover. As we explained in previous blog posts, these typically include ongoing royalty fees for use of the franchisor’s trademark and industry knowledge, an initial franchise fee, plus potential payments for marketing and advertising efforts, franchise agreement renewals, and franchise transfers.
To help investors steer clear of unwanted surprises caused by any unexpected costs and expenses, here’s a look at some of the lesser-known costs of franchising that all potential new owners should know about.
Equipment, supplies, and inventory
Franchise owners pay the cost of acquiring all the tools and equipment, supplies, and other inventory needed to get their new business up and running. That could mean buying specialized machinery, furniture and fixtures for your store, or payment processing technology and equipment.
Costs in this category tend to vary considerably between different kinds of businesses, based on whatever equipment or supplies they require. Specialized equipment, say for safe food storage and preparation, may be costly. Same goes for any business that requires operating, insuring, and maintaining multiple vehicles. Many franchisors will have approved vendors in place for many of these expenses, which may help you secure a better deal than if you were to negotiate on your own.
Training and support
In most cases, franchisors require new investors to attend training for a week, or multiple weeks, before opening a new business location. These sessions are important in communicating the tried and tested methods that deliver consistent results, ensuring consistency in the customer experience at every franchise location.
While some franchisors offer online training, these sessions may be held at a franchisor’s corporate headquarters or another location not in your immediate area, meaning new owners who live elsewhere have to pay their way there and find somewhere to stay for the duration of the instruction.
This education is an essential part of ownership. Understand the travel and accommodation costs when discussing the training requirements with the franchisor.
Real estate and construction
Perhaps no single set of business costs will set you back more than paying for property or construction. Acquiring a physical location for your business can be extremely expensive, depending on the size and location. Understand the costs of starting from the ground up or paying for rebuilds and renovations. Your franchisor will likely offer approved vendors and contractors who are familiar with your brand’s requirements.
Whether you are leasing or own the location outright, be prepared also for regular maintenance costs such as lighting or deep cleaning.
Legal and accounting fees
It’s wise to have expert advice from a franchise lawyer and a business accountant when you need it—their knowledge can help you avoid some unexpected situations or deliver a welcome path out of any trouble you may encounter.
The cost of these professional services can sometimes be quite high and may take a bigger bite out of your budget than you first anticipate. While it’s important to plan wisely enough to be able to cover these costs, remember that it’s likely far cheaper than any penalty you might face for running afoul of the rules.
Insurance premiums
Chances are your franchise agreement stipulates that you must obtain insurance, notably liability and property protection. Remember, too, that property goes beyond any brick-and-mortar business location to include any speciality equipment or vehicle fleet belonging to the franchise. Understand how much insurance will be required and factor that into your budgeting.
Need guidance on your franchising journey? To learn more about franchising with The UPS Store, please check out our franchising FAQ page or fill out our online franchise information form.
