As a professional franchise advisor I am constantly amazed at the client's perception (or lack thereof) of how they view the financial realities when looking at franchises to buy. To be fair, many are simply ignorant or lack good quality information of the requirements and are willing to be educated in the very early stages of considering becoming an entrepreneur. Others are terribly misguided and often unwilling to accept they are unlikely candidates given their limited resources and disconnected thought process to becoming a successful business owner. As a franchise consultant, I view my responsibly importantly to explain these requirements in the very earliest stages of engaging a franchise candidate so no expectations are intentionally mismanaged by being as forthright as possible. Yes, it is disappointing in some cases to deliver difficult news that dashes an entrepreneur's spirit and sometimes their dreams, but in almost every situation is absolutely the right thing to do by being upfront with my clients.

So what are the most common mis-perceptions of many would-be entrepreneurs of the real costs to acquire a franchise?

Many candidates are only focused on the franchise fee required when looking at franchises to buy and wrongly assume this investment is the only cost that actually puts them in a business that will throw of unrealistic and quick profits. The ugly truth is the franchise fee in almost all cases is the least costly portion of the total investment and represents a very small fraction of the entire candidate's capital needs. The franchise fee is merely your placeholder at the table allowing you access to the franchisor's system and defined license requirements to operate your franchise under specific terms as spelled out in your agreement.

In actuality, beyond the franchise fee the client will need additional amounts of capital to fully fund the enterprise and cover such items as pre-paid expenses (if they apply) to include deposits for a lease and utilities, construction build-outs or leasehold improvements, fixtures, computer systems, signage, vehicle purchases or leases, grand opening events, advertising, marketing, etc. Much of this portion of the investment is financiable if the client is qualified but represents a much larger piece of the total investment. Underestimating these particular capital needs can spell disaster to the new entrepreneur and determine his fate before the business really has a chance to succeed. Careful consideration of these budget items needs to be planned in advance.

Less thought is given to what the business will require to sustain its survival and growth over and above the start-up investment. The business will always need additional operating capital to continuously fund ongoing things such as employee's salaries, inventories, utilities, insurance, and all the other day-to-day expenses to keep the business open and operating. Failure to include, budget, and anticipate these expenses and how they're funded is yet another major mistake many new entrepreneurs tend to make without proper counsel.

Once their expectations are in alignment with these realities they are faced with what many perceive as the most startling realization. That is how do they pay their personal living expenses while the business is in an incubation period and they are unable to take any money out of the business for some time? It just isn't practical, let alone good business planning to think the business will be started on the first of the month and pay the mortgage on the 15th. They didn't buy an ATM machine. They bought a business that needs time to become established financially and allows for some owner's benefits to occur within a reasonable time but not immediately. Careful consideration of this need should be planned well in advance and with a conservative time frame for taking money out by the owner.