Advisory Oct, 12 2009

Reducing the start up cost of franchise

A franchisor provides the details of the capital needed by the franchisee in setting up a franchise. Can a franchisee reduce the cost of starting a franchise. Sure, he can if he tries to operate his outlet in a careful manner. Interested to know the vario

By Abha Garyali
Sub Editor
Reducing the start up cost of franchise

Operating a franchise no doubt reduces the risk but like in all other businesses requires huge investment. At the time of investing, the franchisee who is new to the franchising business may have to face a problem in the initial stages and also adopt some means to save on the investment. Sometimes trying to lessen the cost, he may damage the reputation of his outlet. Here is a quick guide regarding the reduction in the start up and running cost of the franchise.

Patience Pays:  The best way for saving on money lies with the franchisee himself. It’s in the human nature to get anxious and eager on opening up of a new venture and look for quick ways to start. Similarly the franchisee gets impatient to get going in his venture. Given an option of opening the franchised outlet in lesser time and with more investments is always preferred by the franchisee as most of the beginners are not aware of the cost saving. These choices can lead to spending a lot of money with no immediate results.  Opening an outlet a bit late is a better option than not being able to run it due to lack of capital later on.

Negotiating on Franchise Fees:  While many franchisors do not negotiate on the franchise fee, there are a few who do. The franchisee should research well on all the companies who give franchising before zeroing in on one. They can also contact other franchisees to determine what kind of deal they received. Everyone can not be good at negotiating so it’s better to keep a mediator or lawyer to get the best deal.

Compromise on Convenience: Most franchise companies offer complete packages in which all the franchisee needs are available in a single package. The source can be the franchisor or the franchisor’s vendor. Franchisees happily accept the package as they are not aware of the other better options available in the market. To save on money and to go for a better deal the franchisee has to take out some spare time and also put some effort to purchase each component.

Dealing with the leaser: Getting the best deal on rent can be a huge advantage on potential savings. Most real estate owners charge a great amount for the property. All leases are negotiable to some extent, but most leases don't initially offer a number of concessions. It is essential for the franchisee to keep an experienced real estate attorney who is familiar with the local market. Franchisee needs to determine the marketplace in terms of items like the square foot rental rate, the Common Area Maintenance (CAM) charges, free rent periods and other economic terms. A good negotiator can get the best deal for the franchisee thereby saving a lot of money.

Curtail on construction cost: Entrepreneur needs to prepare the site, he has chosen, according to the specifications of the parent company. Franchisee can produce significant savings in the process of construction by getting multiple bids for the work. There can be seen a great discrepancy in the rates of the contractors for the same work. Franchisee can also think of saving money by doing some work himself like painting the walls of his outlet etc.

Saving on fixtures and equipments: The franchisee can save money by buying what he really needs. New franchisees just go for expensive equipments. Franchisees can also try to get multiple bids on everything. It will be tedious but there is a huge difference in costs of furniture etc. Another way is leasing or buying used equipments and furniture. In the beginning the franchisee can apply this idea if the franchisor agrees. Used equipment is readily available for many businesses and one can take his franchisors’ advice to know of good sources in the vicinity.

As a final thought we can say it is not that difficult to determine which areas can be most beneficial. It is advisable to consult other existing franchisees as it can save a lot of hard earned money.

Related: Requisites of a successful franchisee

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