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Three Questions Franchisees Should Have in Relation to Finances:

Published: 4 September 2014

Three Questions Franchisees Should Have in Relation to Finances:

1. What will it cost to start the business?

Costs include such items as fit out costs, franchise fees, initial set up fees, and how much working capital is required to run the business until it starts funding itself.

2. How much will it cost to run the business on a day to day basis?

3. What will you need to sell to cover the costs of running the business including your salary?

 

Where do you find this information?

The first place to start is in the Disclosure Document. It details the costs to set up the business and the costs of running the business based on historical data. This will give you an idea of costs in the existing franchised businesses. The next area to look at is the particular costs of business you are going into - look at the local rental costs, whether the fit out needs to be specific to the location and  whether wage costs can differ according to your location.

After all this, how do you determine profitability?

Profitability is not just about top line sales, profit is determined by what's left over after you've paid everyone. If you work in the business you need to pay yourself as well. The basic equation for determining profitability is in this equation :

(how much you sell $) (the costs to run the business $)= your profitability $$$

The key is - make sure you do lots of research to get as close to reality, in determining profitability, as possible.

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