4 ways new franchisees can cut costs

By Nick Hall | 26 Feb 2019 View comments

If you are considering starting a business and the costs are already weighing on your mind, there are a few things you can do to help ease the financial pressure before any documents are signed.

The majority of cash-strapped franchisees will look to cut things from their business, in an effort to chip away at operating expenditure, however the best practice is to get it right from the start and adjust as time goes on.

While as a franchisee you are bound by the requirements of your agreement to follow the operating requests of the franchisor, certain aspects of the business, from initial launch to fully-functioning franchise are at your discretion.

Here’s four ways you can reduce your operating costs from day one.

Lease equipment

In the initial thrill of launching your business, it is easy to be swept up in a buying frenzy, however not all equipment needs to be brand new.

One method of significantly reducing costs when launching a new business is by leasing vital equipment rather than purchasing it outright; this way new franchisees minimise their asset risk.

Business owners who spend large amounts of money purchasing equipment are generally investing their capital in a rapidly depreciating asset, whereas leasing presents the opportunity to return, upgrade or replace equipment where need be.

James Scurr from CashflowIt suggested that new franchisees are better off retaining their hard-earned capital then using it to purchase equipment outright.

“While there is no one-size-fits-all solution for every business, many franchise buyers believe purchasing the equipment for the franchise outright to be the more affordable option. The reality is, in the long run this is not always the case; it can even end up costing you more,” Scurr said.

“Asset rentals, leasing and business loans are smart alternatives to investing your capital into buying equipment outright, and can help take the stress out of opening or expanding your franchise business.”

Pick the right site, not the best site

Site selection is a tricky premise, but it also one of the most influential factors in your franchise business’ success.

Selecting a site in a shopping centre is certain to generate stronger foot-traffic, however the costs involved may far outweigh the sales coming into your business.

Peter Buckingham, managing director at Spectrum Analysis said it is important to evaluate your operation, potential customers, target area and the sales required to cover costs before considering a shopping centre site.

“While they are consistent and reasonable predictable as a huge generator for retail sales, shopping centres have some limitations, such as usually higher rentals as well as set lease periods with normally no lease options,” he said.

“A franchisee needs to understand the demographics of the trade area around their proposed store, and how they fit the clients they hope to attract.”

In order to save money, franchisees should consider growing areas and high-street locations where they can negotiate directly with the leasing agent rather than through often-stagnant discussion with retail landlords.

At the same time, if a shopping centre location is the best fit for your business, it is worth spending the money to meet your potential clients where they are, after all, it isn’t about price, it is about return on investment.

Hire strong applicants

It’s important to remember that your employees aren’t just an element of your business, as most franchise operations will incorporate some level of customer service, your employees are your business.

While having a rotation of younger, casual staff may be a more cost-effective process on face-value, in the long-term, it may actually cost you more.

Lee-Ann Hunt and Tegan Rose from HR Dept Ringwood suggest that if you do choose to go down this path, introducing a recruitment process is critical to ensuring all standards are met.

“Make sure everyone is on the same page regarding your values, workplace health and safety, bullying and harassment and your day to day work instructions,” Hunt and Rose said.

“This is particularly important if you are hiring young people who have never held a job before – they don’t know what they don’t know and that could cost you and your business.”

One way to combat this issue would be hire a small number of experienced full-time or part-time staff members and invest heavily in those employees, through training, job security and career progression.

By maintaining these relationships, you will not only have a more committed team, but one that is willing to stick by you for an extended period of time.

Keep employee records

Rather than a straight-forward cost-cutting exercise, maintaining accurate and thorough employee records is more of a preventative measure.

By enforcing strict compliance structures within your business, you reduce the risk of being audited or investigated by government regulatory bodies such as the Fair Work Commission.

Over the past 12 months, the maximum penalties for failing to keep employee records or issue payslips have doubled to $63,000 for a company and $12,600 for an individual, which is enough to grind business to a halt.

Aside from potential penalties, keeping accurate records is all just good practice, it can help prevent employee disputes and assist new business owners in more effectively measuring the cashflow of the business.

Important advice

The majority of these tips revolve around compliance of operation and performing an effective due diligence process, rather than things that you can strip from your initial plan.

Under no circumstances should you choose to forgo legal or financial advice from a franchise professional in order to reduce your investment cost, this will undoubtedly cost you far more later on.