How Much Franchise Capital Do you Really Need?
It's one of the most popular questions among new franchisees: how much cash will it take? They wonder how much money they need in order to get started, and to get the job done right. Of course, there are many factors that might change that figure. For instance, the type of business that's opening, how much you're spending on a facility (whether buying or renting), and if you're making a judgment call on inventory. Some franchisees might choose to stock up on more overhead than the next guy – neither version is right or wrong, though one does require a little more cash flow.
So what number is right?
First, it's best to start with your franchising company. They will have real dollar amounts for you to look at. They'll have percentages from different business owners, and they'll have data to which you can compare. They might even just say "Your minimum is X," or, "We recommend about this much." Every setup is going to be different. What remains, however, is their willingness to help, and your brand's vast source of knowledge. Don't take this resource for granted. You won't get intel this valuable anywhere else.
Now, it's time to get prepared. No matter how much you plan, how much you list out, something is likely to go wrong. It might be small, it might be big and expensive, but chances are, it will happen and it will slow (or add stress to) your move-in date. Remember this while planning. You don't want your budget to be so tight that a single day can leave you for broke. Be sure to leave some wiggle room, should something take place. And if all goes as planned, well then that's something to celebrate!
Next, consider your personal preferences. Are you one of those plan-ahead types who wants to have more than enough product to go around? Or do you prefer to play it tight and shop as needed … or in the event of a great sale? Neither setup is right or wrong, but rather, something to be aware of. In both cases, you're planning to make back your funds, while in the former you will simply need more to get you started. Don't let it scare you or change up your business practices, just remember to prep for such events so you're ready for whatever comes your way.
Again, what's that exact number?
Our best stab is: a little bit more than your brand recommends. That way you have some wiggle room, if anything were to go wrong. It also leaves you with a little cushion, and therefore, peace of mind. No need to play it too tight and add even more stress on your new career. Play it safe and let yourself relax while everything is being put together.
Whether using sponsors or obtaining a loan, these are good figures to keep in mind from initial planning stages, all the way up through opening day. Working ahead and knowing what to setup for financially will only help the transition go that much more smoothly.
To learn more about business funding and how to determine what numbers are right for your and your company, get in touch today. Or, check out our past blogs!