Buying a Franchise: Planning a Complete Investment Budget

An attractive initial investment figure is not the same as a complete start-up budget. When you join a franchise network, you are not simply paying for a business concept: you need to get premises fully ready to trade. The key questions are therefore which expenses the advertised figure covers, which will arise on top and when payments will fall due. A structured cost review helps you identify funding gaps before orders and building contracts become binding.

1. Break down the advertised investment figure

Ask the franchisor for a written breakdown of the total investment. A single figure or range is not enough to base your decision on. You need itemised costs, the basis for their calculation and a clear distinction between what is and is not included.

Assign each item to one of these categories:

• Access to the franchise system: for example, the one-off initial franchise fee.
• Getting ready to trade: planning, construction, refurbishment, fit-out, technical equipment and installation.
• Initial supplies: opening stock, consumables and essential tools and equipment.
• Other start-up payments: for example, permits, professional advice, deposits and launch activities.

Deposits are not necessarily expenses for accounting purposes, but they do tie up cash. This distinction matters: a start-up budget must show every payment you need to make, not just the costs that will later appear in the profit and loss account.

Also ask what type of premises the figures relate to. A unit that already has a suitable fit-out is not directly comparable with premises requiring extensive alterations. Ask for each amount to be clearly labelled as a figure based on past experience, an estimate or an actual quotation. Check whether delivery, assembly, set-up and final inspection and sign-off are included.

2. Turn franchise requirements into site-specific costs

A brand's equipment and fit-out requirements may be standardised, but the cost of meeting them is not. Before placing binding orders, have the proposed premises assessed to establish what is actually needed. Depending on the business, this could include electrical work, ventilation, fire safety, sanitary facilities or accessibility requirements.

Create a cost table with the following columns:

Item	Supporting documentation	Who pays	Payment due	Uncertainty
Fit-out	Quotation specifying scope of work	Your company	According to payment schedule	Additional installation work unresolved
Refurbishment	Site-specific cost calculation	As agreed	As building work progresses	Technical assessment outstanding
Opening stock	List of products and quantities	Your company	Before opening	Product range not yet confirmed

For each item, establish who places the order, who enters into the contract with the supplier and who bears any additional costs. Procurement organised by the franchisor does not automatically mean that the franchisor pays the bill.

Watch out for double counting: is the till system already included in the fit-out package? Does the stock allocation also cover consumables? Are planning services included in the refurbishment quotation? Conversely, an item must not be left out because each party assumes the other is responsible for it.

Keep a separate list of unresolved points. An uncertain item should not quietly appear in the budget at zero euros.

3. Plan payment timing and reserves separately

Even a financially sound investment budget can leave you facing a cash shortfall. Common causes include advance payments, orders placed earlier than expected or a delayed opening. Add a payment schedule to your cost breakdown, covering the period through to the early stages of trading.

Distinguish between three elements:

• One-off investment requirement: what needs to be purchased or built to establish the business?
• Start-up working capital: which payments must be made before sufficient customer revenue is available?
• Contingency reserve: which additional costs that cannot yet be reliably quantified should this cover?

Start-up payments may include pre-opening staff costs, insurance, rent and the first stock replenishment order. You should also account separately for essential personal living expenses if these are not covered elsewhere.

Check whether quotations include or exclude VAT. Even if you are entitled to recover input VAT, VAT payments may initially tie up cash. Ask a tax adviser to clarify the conditions and timing implications.

Rather than setting aside an arbitrary reserve, work through specific scenarios: what happens if the opening is delayed, extra building work is required or you need more stock? Calculate the impact using your quotations and commitments. This will show you which uncertainties you can afford to carry and which must be resolved in advance.

4. Understand the legal status of cost information and protect your position

Germany has no dedicated franchise law and no official franchise register. Franchise contracts are governed primarily by the general provisions of the German Civil Code (BGB), where applicable the German Commercial Code (HGB), and other relevant legislation. You should therefore not assume that an investment breakdown has been checked by a public authority.

Duties to take account of the other party's interests and to disclose relevant information arise during contract negotiations under sections 311(2) and 241(2) of the BGB. Inaccurate or misleadingly incomplete information about investment costs that are material to your decision can have legal consequences. However, a cost estimate is not automatically a binding cost ceiling.

Clarify in writing which figures are merely indicative and which goods or services are firmly promised at an agreed price. Standard-form contract terms are generally subject to review under sections 305 to 310 of the BGB, with special rules applying to business-to-business transactions. Have a lawyer review clauses that broadly shift costs onto you rather than relying on those clauses being found unenforceable later.

Practical takeaway: Make your decision only once you have a complete itemised breakdown, site-specific quotations and a payment schedule. Every unresolved expense needs either reliable clarification or an explicitly budgeted contingency.