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Estimating Financial
Two-basic categories of financial
requirements for a franchise
1. Estimating Cost of entry
2. Estimating Cost of Operation

1. Estimating Cost of Entry

A prospective franchise is required incur
certain cost to enter a franchisee system.
There are two options available to enter
the franchisee system:
>> Entering a New Franchise
>>> Entering an Existing Franchise

Entering a New Franchise

The cost of entering new franchisee includes expense right from the start up expenses. They would include the following:
(i.) Location and Site selection
A potential franchisee has to select specific location and site according to the franchisors site selection procedure. Some franchisors offer formats and accordingly ask for different space requirements.
The cost of acquiring the space equivalent to the requirement of the franchisors, a potential franchisee can work out the total cost of space on either ownership basis or obtaining on a lease.

(ii.) Interior and Decoration

Interior and decoration plays vital role in

creating a store layout and store ambiance. A
store has to be designed in accordance with
the type of merchandise to be retailed and
type of customers services to be offered.
Franchisors have a definite guideline pertaining
to frontage, lighting and other amenities
Such as air conditioning unit, water purifier,
toilet block etc.

(iii.) Furnitures and Fixtures

Some franchisees supply furniture on
their own or provide specification and a
list of vendors from where the franchisees
can buy furniture.
Certain equipments vary critical to the
core products/services may be provided
by the franchisers themselves.

(iv.) Licensing and Permission

It is important for a franchisee to obtain

necessary license and official permission from
competent authority, in order to start the
business. Generally, license under Shops and
Establishments Act is necessary to set up a shop
for retailing. Moreover, a special permission is
required under the same act to keep the store
open for 24 hours.
The cost of obtaining such license and permission
must be accounted for as start up expense and
may be considered as a cost of entry.

(v.) Franchise Fee

Some franchisors charge a franchise fees for
their franchisees while signing the contract. It
is therefore, also known as contract signing
amount usually is not refunded to the
franchisees if the relationship comes to an
end. The franchise fees vary in tune with the
brand equity the franchisor enjoys the profit
potential of a franchise, size of the market,
growth potential, tenure of the franchise
agreement, and the on-going support the
franchisor promises to extend.


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