Advisory Mar, 18 2010

Administer your finances for franchise success

Attaining the break-even period comfortably is a tough call for every debutant as well as experienced franchisee. Maintaining a balance between personal expenses and business needs till the break-even period is reached requires intensive planning. Read on

By Abha Garyali
Sub Editor
Administer your finances for franchise success

A prospective franchisee either a first-time starter or an experienced franchisee may find the route through the break-even period tough and exhaustive. With the aim to be successful in the franchising arena, the franchisee may take the risk of over expenditure in their business establishment. Under such instance, a franchisee be it the young entrepreneur or an experienced franchisee must invest their money cautiously. They should have sufficient savings both for their personal as well as business expenses till the time the break-even is reached.

Break-even period

Break-even period is the time when the initial investment made by the franchisee to start his business is earned and starts making profits out of his outlet. Mostly the franchisors do not provide any specific time for the break-even as it depends on the sales growth of the respective franchisees. However, franchisees need minimum of six months to reach the break-even. During these months which can extend to years, the new franchisee has to manage his personal as well as family expenses.

Surviving before achieving the break-even

The time between taking a franchise and reaching the break-even period can be troublesome for any franchisee. As this period requires tremendous effort and patience from the franchisee, therefore here are few guidelines to make this period easier:

Maintain personal expense account: New franchisees should maintain a separate account for their personal expenses. This capital should not be used for any business use but should be carefully spent on the personal wants. Franchisees need to maintain a personal account with the capital which can sustain them comfortably till the break-even period.

Avoid over-expensive materials: Many debutant franchisees believe that they can reap more profits and get success quickly by installing very expensive material in their outlets. Moreover, a lot of franchisees buy stocks from the vendors of the franchisors, who can be far away from their location. Therefore, they waste money on transportation. A better way is to deal with vendors near the place of business.

Avoid overstocking: Many franchisees make the error of over-stocking their outlets with goods that cannot be sold within a month. Always keep in mind to buy only limited merchandise from vendors and do not commit any mistakes by wasting expenses on use-less purchases.

Scrutinise daily expenses: The daily business as well as personal expenses drain a lot of money from an entrepreneur. This is due to the carelessness of not keeping a check on it. Maintain a diary of the daily expenses and try to save on worthless buying.

Never depend on loans: If as a debut franchisee you believe that taking loans from banks and lenders for your personal expenses is the right way, you are misinformed. Taking loans against life insurance can be given a thought.

Discuss with other franchisees: Another useful way to deal with the break-even period is to talk to as many other franchise owners as you can to see if they are willing to share some of their experiences with you. If you are outside their competitive territory, they may be very open about their experiences. A few franchisees can relate to your precarious position and can advise you to improve the situation. This way it can be revealed that how long it took other franchisees to make profits.

Take the break-even as a challenge: The best way to deal with the in-between period is to take it as a challenge. Franchisees should strive to overcome the shortage of expenses by working harder to achieve the goals. Feeling of failure can demoralise any entrepreneur, thereby taking the period as testing grounds of patience is the best way.

Keeping in mind the above given guidelines, debutant franchisees can surely deal with the in-between period of the start-up and the break-even. This period is undoubtedly tough on the personal front of the franchisee but is sure to reap high profits later on.

Related: Foster franchisor franchisee relationship

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