Setting up a franchise: how to check the opening budget

The advertised investment for a franchise does not always reflect the cost of getting a particular outlet up and running. Building works, equipment and premises requirements can all change the figures. Before joining a franchise network, turn the sales estimate into a budget you can verify: what will be delivered, how much it costs, who pays and when. This helps prevent expenses discovered too late from jeopardising your opening.

1. Understand the legal requirements for setting up

In Brazil, Law No. 13,966/2019, known as the Franchise Law, regulates business franchising. Article 2 requires the Franchise Disclosure Document (Circular de Oferta de Franquia, or COF) to state the estimated total initial investment needed to acquire, set up and begin operating the franchise.

The disclosure must also cover the initial franchise fee and the estimated costs of fitting out the premises, equipment and opening stock, together with their payment terms. A presentation highlighting only the franchise fee is therefore no substitute for this information.

An estimate is neither a fixed quotation nor a price guarantee. Ask when the figures were prepared, which outlet format they cover and what assumptions were used: floor area, condition of the premises, equipment capacity and standard of finish. An estimate based on a ready-to-use shop may not suit premises requiring a complete refurbishment.

The COF must be provided at least ten days before you sign the agreement or preliminary agreement, or pay any fee to the franchisor or a person or company connected with it. This is a minimum advance disclosure period, not a deadline for completing your assessment. If you have questions about the set-up process, resolve them before making commitments.

2. Break the budget down into verifiable deliverables

Request a detailed spreadsheet rather than accepting broad headings such as “complete fit-out”. For each item, record the quantity, specification, price, delivery and installation costs, who is responsible for payment and how long the quotation remains valid.

Organise your checks into four groups:

• Design and preparation: premises surveys, technical designs, professional services and arrangements for permits applicable to the business activity and municipality.
• Building works and installations: electrical and plumbing alterations, heating and cooling, accessibility, lighting, surface finishes and final finishing work.
• Equipment and furniture: machinery, counters, shelving, computers and other items needed for the chosen format.
• Opening preparations: opening stock, system configuration, final cleaning, testing and other expenses incurred before serving customers.

Check whether each quotation includes materials, labour, transport, assembly and testing. Apparently cheaper equipment may require alterations that are not reflected in the purchase price.

Flag excluded items too. “At the franchisee’s expense” identifies who pays, but does not tell you how much will be needed. For every significant exclusion, obtain a quotation or record that the amount still needs to be established. Do not treat a gap as a zero cost.

3. Test the assumptions against the premises and timetable

Even where the visual design is standardised, the condition of individual premises varies. Before committing to expenditure you cannot recover, seek a technical assessment appropriate to the intended business activity. Confirm that the site can accommodate the equipment, electrical load, movement of people and other planned installations.

The franchisor’s commercial approval of the location does not replace a technical assessment or the necessary checks with the relevant authorities. Ask which assessments the network carries out and which remain your responsibility.

Then draw up a timetable linking deliverables to payments. For example, final measurements may depend on completing a stage of the building works; furniture manufacture may require a deposit; and installing a machine may depend on the necessary infrastructure already being in place.

For each stage, answer:

• What must be completed before work can begin?
• Who signs off the completed work or supplied items, and against which criteria?
• When is payment due?
• Which expenses will continue if there is a delay?

This sequence reveals pre-opening cash requirements that a simple total of prices will not show. Also model a delay scenario and one involving additional alterations to the premises, using actual quotations and terms rather than arbitrary percentages.

4. Document changes and responsibilities before buying

Compare the final spreadsheet with the COF, the commercial proposal and the agreement. If the budget for your particular location exceeds the estimate provided, request an itemised explanation: differences in floor area, the condition of the premises, updated prices or changes to the required standard.

Confirm in writing who approves substitutions of equipment and materials, and how design changes during the set-up process will be handled. Do not assume you are free to change specifications simply because you are paying for the purchase.

Ask your lawyer to check the set-up obligations and your accountant to review the financial planning for payments. Keep quotations, design versions, approvals and proof of payment in a single folder.

In practice: proceed once every significant expense has an amount or a basis for calculation, an identified responsible party and an expected date. A reliable budget does not eliminate unexpected costs, but it lets you distinguish between confirmed figures, estimates and items still awaiting a decision.