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    4 Replies Latest reply on Mar 21, 2008 8:25 PM by Wingman

    How "right on" are the estimates for starting a franchise?

    Ncapadona Newbie
      I'd like to know exactly how percise the estimates for starting a franchise are? I've narrowed it down to one particular franchise that I really think would make it, but they list it costing 200K up to 300K for opening costs. They list real estate improvements as a 75K expense, as well as equipment as a 75K expense. I know I'd be able to get the equipment for a lot less and if I'm not building my own building would improvements run 75K? This will be a food service place only 1000-1200 sq ft. Do franchises require I buy new equipment from certain companies? Basically what I'm asking is will a franchise even consider me with only 75K in cash, when they list it costing upwards of 300K to start?
        • Re: How "right on" are the estimates for starting a franchise?
          LUCKIEST Guide
          Great question. Starting with a franchise is expensive. The reason you want to go with a franchise
          is that it has a proven track record. They SUCCEED and they want you to SUCCEED.
          They know what opening costs are and then you need additional costs to run this franchise for the
          first few months (like 3 to 6 months) Each month you will have fixed costs like RENT and PAYROLL
          and TAXES and INSURANCE plus INTEREST and LOAN payments.
          If they want 300k and you only have 75K, where are you going to get the difference??
          Good luck, LUCKIEST
          • Re: How "right on" are the estimates for starting a franchise?
            Lighthouse24 Ranger

            Will they consider you with only $75K? Ask them.

            You could probably secure financing for a portion of the capital assets, and the equipment can often be obtained on a lease/purchase arrangement (especially if you use the equipment/suppliers they recommend). You'd obviously need cash for down payments. In addition, you'd need cash for the franchise fee and the initial collective marketing/advertising fees. Newly opened restaurant franchises typically don't begin to make a profit until their third year of operation, which means you'd also need cash to cover the difference between your operating costs and revenues (and to pay your personal expenses) for perhaps 30 to 36 months. Most rookie restaurant owners are far too optimistic about initial cash flow. (In my hometown, two people have acquired about 30 different fast food franchises over a 12 year period, picking up each of them for a song when the original franchisee ran out of money. We don't want that to happen to you!)

            Hope this info helps. Best of luck!
              • Re: How "right on" are the estimates for starting a franchise?
                heavenly91321 Wayfarer
                To answer your questions as someone who started a franchise just two years ago, I would DOUBLE that figure....then you KNOW you will make it in the long haul....the capital improvements are NOT building real estate buildings or anything else--especially in a food business, you have all of the duct work, the exhaust work, the special electrical panels and equipment, gas lines for commercial grade stoves and ovens, etc. All of these improvements are mandated by law. Also, the equipment is usually leased from the "franchise approved" vendors....these are usually a bit more spendy, but they have built relationships with the companies, and don 't want to jeopardize those relationships. They will, in some instances, let you use outside sources, but don't count on it. As for expenses, in your business plan, (which should be a minimum of 75 pages) double them, and as for projected incomes--cut them in half!! I projected very optimistically (I am an eternal optimist) and was unpleasantly surprised, however, because we had enough reserves, we have made it through the start up phase, and are now into the "expansion phase" which entails starting another location across town!! If you have a Chamber of Commerce in town, (which I believe are in 99.99999% of cities) go to them and ask for their small business info--there will probably be a SCORE group--TALK, TALK, TALK to these people...they know what you need --alot of times more so than you do!! I have been an entrepreneur for 15 years, and the older i get, the more businesses I start, the more I discover I don't know enough about starting business and by employing the help of small business networking groups, SCORE, Chamber of Commerce, and most importantly, GOD, I will die a happy (and wealthy) entrepreneur!! Best of luck in your venture!!
              • Re: How "right on" are the estimates for starting a franchise?
                Wingman Adventurer
                Hi Ncapdona,

                The "Estimate" is just that. Depending on the amount of work that you need to have done to your location, your actual expenses can be less or more (most likely more). You also need to lump into the estimate the architect fees and what ever licenses/permits you'll need for your location.

                You need to verify with the franchisor whether you are required to purchase your equipment through them or not. It will depend a lot on the size and strength of the franchisor. If they are small and have limited personnel, you may have more freedom to do things on your own. If they are well established and have their act together then you may have less latitude to do things your way

                Have you talked to any existing franchisees to get an idea of their experience with the franchisor? If not, you should really make the effort to talk to as many of them that you can. If you have not already done so, you should also try and visit as many existing franchise locations so you can. That will give you an idea of consistency among the franchise. Hopefully, they owner/manager will be more willing to talk openly to you in person.

                Good luck