A survey from the Franchise Business Review found that the average franchise owner only makes about $66,000 in profit each year. Of course, this doesn’t account for the debt and initial investment costs that many franchise owners have to undertake to launch a franchise. In fact, many franchise owners drown under surmounting debt and can barely make enough profit amid their annual expenses to truly turn much of a profit.
Franchising is not the most luxurious business opportunity, but it can turn a heavy profit if you run it right. While franchisors do offer some help, it’s up to franchisees to run their own shop. Here, we’re going to discuss a few tips franchisees can follow to save money on initial startup costs and operational expenditures so they can focus more on growing their business instead of keeping it afloat.
Avoid Amassing Debt
Perhaps the biggest obstacle that franchisees run into is paying off their initial investment in the face of stagnant profits. Depending on the business model itself, some franchisees may take months before they become profitable. On top of this, some franchisors charge fees and eat up profits by leasing franchisees their brand and merchandise.
Avoid credit cards as well to help finance your business. Any instrument of debt should not be used to help yourself climb out of more debt. Try to throw as much of your own capital at a business plan as you can afford to minimize your debt burden. Negotiate contract terms with franchisors to seek outside funding, minimize barrier costs, and reduce monthly fees.
Reduce Equipment and Utility Fees
It’s important to always shop around for equipment and fixtures when launching a new business. Shoot for multiple bids on different fixtures to find the lowest prices. In terms of buying used equipment, just make sure they don’t violate contractual terms and meet company guidelines for safety. Ask franchisors for help finding deals on local equipment or from national chains that they have special partnerships with.
There are many things a franchisee can do to minimize utility fees and startup costs. Consider aggregating your energy usage with other local franchisees to save money on commercial utility costs. You can also install energy efficient equipment to help reduce electricity costs, which are burdensome for new businesses.
Find an Affordable Lease
Speaking of shopping around, it’s important to find a lease and landlord who will work with your business to provide you with the fairest deal. We’ve all heard horror stories of small businesses who shut down unexpectedly after their landlord jacked up the rates. For franchisees, switching locations is merely the first and last nail of the coffin to completely impede profits and success.
Shop around for an affordable lease and find a mortgage lender who will offer you a low APR if decide to purchase instead of lease. Consider expanding or renovating your business after you have established yourself instead of piling on more debt before launch.
Don’t Stop Marketing
Finally, while this may seem contrary to the notion of withstanding debt, but you’ll never grow your franchise without a little marketing. While franchisees benefit from free, national advertising, it’s still important to establish a local presence. This could be simply registering for a Google My Business profile or even establishing a local SEO profile. This form of advertising is virtually free and critical toward attaining local success. Consider that 50% of mobile searches are for local business information (name address, and phone number).
Share techniques with fellow franchisees and A/B test different marketing approaches. Never be afraid to ask for help or advice from other franchisees to discover the methods of their success.