Not too long ago, experts were predicting that the Covid pandemic would lead Australia into a protracted recession. And for prospective franchise owners, that certainly wasn’t good news. It meant a substantially tougher business environment awaited them as they worked to get their businesses up and running. But lately, the economic mood here has started to shift. Now, economists are becoming cautiously optimistic that Australia might be able to defy the odds and stave off any lengthy downturn.
But that doesn’t mean prospective franchisees are out of the woods. Instead of a downturn, they now face an economy beset by rising costs and higher business expenses. And that means it’ll cost more money to turn their franchise dreams into a reality. The good news is that there are some strategies that new franchisees can use to reduce some of their expenses as they get up and running. Here’s what they are.
Negotiate With Approved Suppliers
In many — if not most — franchise agreements, franchisees must accept that they’ll need to purchase certain business-specific supplies from one or more approved vendors. And there’s a good reason for that. It’s how franchisors maintain quality control over branches that they’re not operating themselves. But for franchisees, it can lead to paying higher prices than they otherwise would for the same items on the open market.
That’s why franchisees need to reach out to as many vendors on their approved list as possible before they’re ready to begin operations. By doing so, they may be able to negotiate somewhat better prices on some of the items they’re required to buy. And while the bottom-line impact may not seem like much, reducing those costs — even by a little bit — adds up over the long run and shortens the time it will take for the franchisee to achieve profitability.
Look to Trim Facilities Costs
More often than not, franchisees are on the hook when it comes to building a facility for their new business to operate from. And they also have to have their facilities conform to the standards set by the franchisor. To a certain extent, this ties the franchisee’s hands concerning facilities costs. But that doesn’t mean there’s nothing they can do to trim their facilities costs.
To start with, most franchise agreements only specify the general parameters of the building required. But they don’t specify which contractors the franchisee must use to build it. So, one of the most impactful ways franchisees can cut startup costs is to be selective and obtain multiple project quotes from prospective general contractors. Believe it or not, the construction market in Australia’s still competitive enough that it’s not that hard to encourage a bidding war for a building project.
And beyond construction costs, franchisees should be careful when arranging for their location’s energy needs. With energy prices rising significantly in recent months, it’s a decision that can have an outsize impact on the bottom line. The good news is that franchisees have plenty of options to choose from, particularly in the big cities where most franchises operate. For example, there are countless electricity providers in Melbourne that may offer discounted rates for new customers. And the same is true elsewhere in the country.
Consider Secondhand Equipment or Leasing
For many franchises, necessary equipment makes up a significant portion of operating costs. This is especially true when it comes to retail and food service franchises. The former might require specific equipment such as product displays and other installations, while the latter might require specific kitchen equipment to handle making their franchise’s menu items. In any case, those equipment costs often make up a substantial part of a franchisee’s startup costs — and they can’t be avoided.
They can, however, be deferred somewhat. In many cases, new franchisees may be able to purchase serviceable secondhand equipment from other owners who are winding down their operations. Doing so can help them to minimize their upfront costs without impacting their ability to operate. All it will mean is a shorter equipment replacement cycle, which will hopefully occur at a point when the franchise has its finances on firmer ground.
And if secondhand equipment isn’t available, another alternative would be to look for leasing opportunities on the necessary equipment. While doing so will increase some costs over the long run, it can slash the upfront expenses a franchisee has to contend with. Plus, it creates some cost certainty by eliminating unexpected expenses, since faulty equipment would be replaced by its owner and not the franchisee for the duration of the lease.
On the Way to Franchise Success
Even though the present economic conditions could be a challenge for a new franchise owner, they’re not as bad as many expected them to be. And by taking some early actions to contain startup costs, franchisees can overcome any disadvantages created by upward inflationary pressures. That will give them a clearer path to profitability and increase their odds of success as they work toward making their franchised business a successful one.