5 Money Mistakes to Avoid if Buying a Franchise

5 Money Mistakes to Avoid if Buying a Franchise

Franchises appeal to many different types of folks due to the universal appeal of being your own boss. That’s why there are always new franchises opening up on local shop corners, offering familiar goods and services at a reliable price. New business owners can essentially purchase a shop start-up kit that already includes an established name, inventory, and rulebook. A lot of things are already set up so you can hit the ground running. 

But is running a franchise really that easy? 

According to a study by NBC, retail franchises only have a survival rate of 65% compared to the 72% of independent companies. While mistakes are just part of being human, it’s not always affordable to go through a period of trial and error when you are starting your franchise for the first time. You need to steer clear of some crucial errors at all costs if you want your franchise business to succeed. 

5 Money Mistakes to Avoid if Buying a Franchise

Below, our Indevia online bookkeeping services staff name 5 money mistakes to avoid if buying a franchise.

Not Starting With Enough Cash

Even in our digital age, cash still reigns as the lifeblood of any startup process. One of the most common errors that new franchisees commit is underestimating how much cash they will need to get their companies started. Securing a loan for the base franchise costs is simply not enough. 

You will need working capital, meaning you will have daily operation costs. Don’t rely on the fame and familiarity of your brand to rake in tons of success right at the start. You should consult with an accountant to help you estimate the cash you will need right at the top, including a little wiggle room. 


On the opposite side of the coin, many new franchisees are so eager to open their doors that they will secure any kind of loan they can get, as long as it will cover the cost of opening. Unfortunately, this tends to make people bite off more than they can chew. If you accidentally borrow more than you can afford to pay off, your company could be run into the ground before it even has a chance to get off of it. Take into account the capital you are earning, your operating costs, and your building rent to ensure that there is still enough left over to cover your loans. 

Forgetting to Do Your Research

Don’t get too caught up in current trends and popular choices. This may seem like a good idea in the short term, but in the long run, it may force you to close your doors far too soon. It’s really important to research your franchise and compare its features to those of competing franchise businesses. 

Always do your research to determine what the best economic choice for you is. Something may be enjoyable now, but will it still be bringing in as much profit in 5 or 10 years from now? 

Sacrificing Rent Prices 

Whether in search of that prime location or just settling for a space you can access as quickly as possible, you might underestimate how much you end up paying in rent. Remember that it can be a while before you start making enough of an income to pay off all of your costs within a reasonable amount of time. You should consider whether the foot traffic will be worth the higher rental costs, or if there is an alternative location for you to set up shop. 

Forgetting Extra Costs

concept of person walking toward financial pitfall
Businesswoman ran to a money trap pit. Risks or mistakes in financial investments. isometric vector illustration.

No budgetary plan is going to be exact. You should always prepare to go a little over your expected costs in the event that the unexpected occurs. But it’s not just those surprise events; it’s several different marketing plans, setup fees, and hidden costs that somehow forget to get taken into account. This is what Forbes considers to be one of the biggest pitfalls of buying into a franchise without being fully prepared. 

If you need a more effective way to manage all of these surprise costs such as salaries, equipment maintenance, vendor purchasing, and more, you may benefit from an accounting process improvement for your franchise using automated accounting systems. 

Get Further with Your Franchise Today

There are many important things to consider when first starting up a franchise. If you are a new business owner who is having trouble keeping tabs on different startup fees, costs, and pitfalls to avoid, you can reach out to our certified team of professionals today. We offer bookkeeping services as well as automated accounting features so you can keep your mind off of menial tasks while knowing they will get done. Reach out to us today to learn more! 

Featured Resources