So you’re already paying fees to your franchisor and as you add additional stores to your belt, those fees will go up. You will more than likely have to pay a higher royalty fee for each franchise that you own. You might have other dues that are required as well, but that should all be laid out for you in the FDD and/or the franchise agreement. With all these costs going out, organization is going to be important to keep track of your finances. You’ll also need to crunch the numbers to be sure you can afford the additional costs that come with another franchise. As you may recall from your first location, the initial start up is not the only cost. You’ll need payroll, fees, equipment, and more as you get started.
To be sure you can handle all of this, review your current franchise’s overall financial condition with the help of:
A balance sheet will include all your assets. That means cash, real estate, inventory, equipment, and accounts receivable. It will also contain your liabilities such as outstanding bills, tax obligations, and loans.
That is, consider how much you’re making vs. how much it’s costing you. If your franchise is making 4% back a month, but the loan you have with your bank is costing you 8% a month, you might want to rethink opening another franchise until you’re making more back than you’re paying up front.
Projected income and expenses for the coming year should be written out. This can help you compare your actual income to your expenses.
The P&L will summarize your income and expenses. In short, it will tell you if you’re profitable or unprofitable.
This final financial document will tell you just how much cash you’re generating with your current operations.
To open your future franchises, you can do what you did with the first and seek financing with your franchisor and/or whatever methods you used or you can simply rely on the cash flow coming back from your first franchise. However you can’t just think of that. You have to weigh your other financial matters too. You must also consider whether your bank will be able to support your growth. Investigate the current interest rate of loans and look into alternative investment strategies. You’ll also want to check with the market to see what the going costs are for real estate and construction as they are constantly rising.
Just like the first time around, it’s important to make a list for your expected costs when starting and what you’re willing to spend. You’ll have extra costs coming at you from out of nowhere and this is not a process that you want to invest in, get in the middle, and realize you don’t have enough money to finish the job. If you’re purchasing area development rights, remember that you’ll also have to pay a portion of the franchise fee up front and neither of these things will come back to you immediately. Research, be fully informed, and be solid in each move that you make as you open a new location because remember, the bigger the earnings, the bigger the risk.