Advisory Oct, 08 2009

Unmask the hidden costs

One of the most common reasons for a franchise failure is the lack of working capital. But this may not be your fault, your franchisor may not have informed you about the hidden costs involved in the functioning of your business. Knowledge is the key, her

By Neha Malhotra
Sub Editor, Franchise India Holdings Limited, Web Division
Unmask the hidden costs

The phenomenon of not being informed about all the costs involved in a franchise business is witnessed by a majority of the franchisees. A franchisor may not inform you about these costs having two intentions in mind. Primarily you might deter away from taking up the franchise and secondly he might think that you would be aware of the costs involved in the day to day functioning of a business. Informed or not, this plays a crucial role in the success of your franchise. Familiarity about these hidden costs can help you safeguard your business against the unknown.  Here are a few hidden costs you can look after in your franchise operations.

Real estate costs

Real estate costs involving rentals, leases, rent deposits and construction improvements if required etc. might not be included in the cost structure given by the franchisor. These may also vary from time to time leading to uncertainty.

Professional fees

In your franchise journey, there may be time when you would need the assistance of lawyers, accountants and bankers. All of these services come with a price tag, so you need to keep in mind their expenses. 

Insurance

Insurance is a must in today’s times and you need to have an insurance broker to guide you on these lines. Not just one but a few elements need insurance so expenditure needs to be incurred on it.

Permits and licences

Certain formats of business need certain permits and licences to carry out their business.  For e.g. If a restaurant owner wants to include liquor to its menu, it will have to get a liquor licence from the local authorities.

Training

The initial training provided by the franchisor is included in the initial cost of the franchise. However, the expenditure that comes with it is not incorporated. This comprises the cost of airfare, transfers, local transportation, accommodation and food expenses.

Equipments

If you need additional equipment in the process of carrying of the operation in your franchise, then you will have to pay the price for it. The ongoing maintenance of the wearing out of the equipments already bought by you is also your area of spending.

Store Maintenance

The ongoing store maintenance goes from your pocket. The damages or refurbishing of the décor, signage or fixtures needs to be taken care of by the franchisee.

Taxes

Various taxes are applicable for carrying out a business. Taxes like VAT and other taxation liabilities is your concern.

Words of Caution

To be on the safer side, before taking a franchise try meeting up with the existing franchisees to see how much it will actually cost to keep the business running. Talking with them will bring you in a better position to analyse your financial commitments and your ability to carry them out.

Related: How significant are franchise brands for malls?

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