Franchise startup costs: where to find savings
When you’ve signed on the dotted line and you’re a brand-new franchise owner, it’s time to think about franchise startup costs. You might be surprised to hear that the biggest money-wasting startup cost is really just part of human nature: impatience. Most new franchisees are understandably excited to get to the ribbon-cutting and open their business. When presented with multiple options they choose the speedier one, which usually comes with a higher price tag. But when several expensive (but speedy and convenient) options are chosen, the cost adds up. And in many cases, the time gained doesn’t produce enough long-term value to offset the increased cost. You’re likely wondering how to solve the cost vs. speed quandary. The answer is simple: balance. Don’t lean too far to the cost-saving side or the speed/convenience side of the fence.
There are several common expense categories that most startup savings fall into. “Time is money” applies to most of these areas. Here’s where to look for savings:
This category of franchise startup costs can bring significant savings, so it’s wise to gather expert advice. Consult a good commercial real estate agent and an experienced real estate attorney familiar with the local market. All leases are negotiable to some extent, but through skilled negotiating you may be able to obtain significant concessions. With your realtor and attorney, you can determine what’s standard in your marketplace in terms of variables like the costs per square foot, the Common Area Maintenance (CAM) charges, free rent periods, construction allowances, and other terms. Then you’ll have a point of comparison as to whether you’re getting a good deal.
Most franchises require a physical site that needs to be prepared according to specifications. There are a two basic ways to save money here. First, get multiple bids for work that needs to be done. You’ll be surprised at the cost variance you’ll see between contractors. Second, put some thought into DIY. What might you be willing to do yourself in order to save money?
Equipment, signage, and fixtures
This category of franchise startup costs represents a significant expense for most franchises. Again, it’s worth your time to get multiple bids on everything. In terms of your equipment, think about buying used components. Some franchises will not allow that option, but most will allow you to source and purchase used equipment as long as it meets particular guidelines. Ask your franchisor about good sources in the area.
A lack of sufficient insurance coverage could bring down your business, so it’s best to get as much business insurance as you can reasonably afford. Sit down with your insurance broker and have them shop around to get the best deal. There can be surprising differences in rates for the same coverage by different insurance providers. Increasing your deductible is one option to reduce your premiums. But make sure your deductible is not so high that it would be unaffordable for your business if you had to make a claim. Upgrading your location with fire alarms, sprinkler systems, and/or security systems can make you eligible for insurance discounts. The lower your risk from the insurer’s point of view, the lower your premiums are likely to be.
As a final thought on this topic, remember that it’s not hard to determine which areas will produce the most savings, whichever franchise you select. All you need to do is ask current franchisees. The time you’ll invest in making these contacts will be an investment that can pay big dividends in startup savings.