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Fixed Costs of Franchise Real Estate
Don't
over extend yourself with property costs.
If you do, you will have to endure pressure to overcome those costs every
month in order to break even or make any profit. You should budget for the fixed costs of your franchise real estate so that your new small business will be able to afford before shopping for a location. Usually define that budget in cost per square foot. In certain areas, rents have historically been so high that many new franchise businesses could not realistically support the rent. In that case, the business is not sustainable in that area. Period. Explore a different type of opportunity where real estate is not as significant a cost factor, or where projected profits will be higher. Even after the 2008-2009 meltdown, rents in certain areas continue to make many retail businesses financially unjustifiable. In such areas, look at business-to-business or consulting type franchises that need office rather than retail space, or at personal services franchises. Negotiating with the landlord to minimize your tenant improvement costs
can significantly affect your overall startup funding requirements. In 2010 there are many vacancies and pressures on retail centers, pushing rental costs down. BestFranchise.org believes assertive negotiators can get much better lease terms than was possible 6 months or a year ago. Remember that the property owner often carries high debt expenses. Find out how recently he or she bought the property. That will give you some clue as to the flexibility the landlord can provide. If you aren't careful about taking on too large a lease obligation, you could end up working mainly to pay off the landlord's needs, and won't make a profit. Don't lose site of that fact that fixed costs in a franchise will be your biggest enemy. Every Monday you begin covering the weekly break even all over again, and have to collect enough revenue to cover these costs before you earn a dime. If your margins are not high enough, it will take that many more dollars in sales before you overcome the breakeven point. Do everything you can to keep your fixed expenses to a minimum, especially when you are starting out. You can always choose to raise your fixed costs base later, after experience tells you it is ok to do so. Don't forget, this venture is about making franchise investments . Focus first on getting a good return on your investment. Invest in luxury locations for personal reasons, separate from your business.
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