Food Franchise Business · Money & Financing

Estimating Startup Costs of a Food Franchise

Food Franchise Finance

Knowing your startup costs ahead of time is crucial to the first year of operating your restaurant. You need to budget carefully so that you know exactly how much the costs will be to start your new business. If you're unsure of how to prepare a business plan that includes startup costs make sure that you find out how. There are many business resources on the Internet that can help you learn how to create startup costs within your business plan.

Here are some general guidelines before you begin adding up your startup costs:

• Don't over estimate. You need to allow room for any contingencies that may come along that can affect the startup costs of your franchise. It may be in your favor to develop two different startup cost plans: one on the conservative side and one with a higher budget. This way you can be prepared for the best and worst end of the spectrum
• Keep room in your budget for cash flow and operating costs. It may be some time before you see a profit on your business. You'll need to factor your own living expenses into your startup costs as well the cash that you'll need to have on hand for the operation and growth of your franchise.
• Figure out your funds. You'll need a different amount of cash flow for each stage of your franchise business. This can include funds for employees, equipment, training, further investing, and your own personal income.

Your first step in estimating startup costs is to first estimate your capital needs. This includes:

• Identify the categories that you have for startup costs.
• List all items in each category.
• Give each item in the list a dollar value.
• Add up your startup costs.
• Decide which of these startup costs are really necessary and which can be delayed. Can any be eliminated altogether? Can you decrease the dollar value of any?
• Organize your startup costs for your business plan.
• Organize your startup costs for you loan application, if you are going to need one.
• Estimate the cost of (1) building rental, (2) financing costs, (3) risk assessment, (4) acceptable ROI, (5) the total amount of your personal investment, and (6) future investment value.

You'll need to determine what equipment and other expenditures that need to be in your startup costs that you need to start your business. This includes:

• Cash registers
• Equipment for cleaning
• Tables and chairs
• Office equipment
• Permits
• Alarm systems
• Fire safety equipment
• Taxes
• Insurance
• A deposit for worker's compensation
• Utility costs
• Food costs
• Employee pay

The list of startup costs will vary for each individual restaurant. It's important that you be as accurate as possible so that when you include your startup costs in your business plan that you're not too far off the track with the final total. If you're applying for financing, your creditors will want to see a concise business plan that includes well laid out startup costs that aren't too aggressive or too lenient.

Good luck finding the perfect food franchise opportunity!

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