Prepare a Breakdown of Franchise Opening Costs in Malaysia

When franchising an existing business, a single ‘start-up capital’ figure is not enough to help prospective franchisees make a decision. Business owners need to explain what is being purchased, who receives payment and which costs remain uncertain. An evidence-based breakdown of opening costs builds trust within the franchise community and reduces disputes once work to prepare the premises begins.

1. Define the scope of opening costs

Start with one question: what needs to be paid for to get an outlet ready to welcome customers? Do not simply copy the amount previously spent on a company-owned outlet. That outlet may have used older equipment, benefited from preferential rent or received support from head office staff at no separate charge.

Divide the list into categories that are easy to check:

• Franchise rights and set-up: the initial franchise fee and any set-up charges that actually apply.
• Premises: rental deposits, fit-out work, utility connections and basic fixtures and fittings.
• Equipment and systems: purchasing, delivery, installation and activation of the systems required.
• Operational preparations: opening stock, packaging materials, workwear and consumables.
• Pre-opening staffing: recruitment, wages during the preparation period, and travel or accommodation for training where applicable.
• Administrative requirements: licence applications, insurance cover and relevant professional services.

Separate opening expenditure from the funds needed to support operations after opening. If the package mentions working capital, explain what it covers and avoid presenting it as a guarantee that the funds will last until the business becomes profitable.

Also distinguish refundable deposits from non-recoverable expenditure. Both require cash upfront, but their implications for the franchisee differ.

2. Support every figure with evidence and assumptions

Use records from existing outlets as a starting point: invoices, purchase orders, installation contracts and payment records. Then check whether those costs remain relevant to a new outlet that will be operated by a franchisee.

For each cost item, record at least the following:

• A description of the item and the quantity required.
• The source of the price and the date of the quotation or invoice.
• The party receiving payment.
• Whether the figure is fixed, estimated or site-dependent.
• What is included and excluded.
• When payment is expected to be due.

For example, the price of a machine may not include delivery, additional wiring or installation. A fit-out quotation may assume that the premises already have a suitable electricity supply. Assumptions like these must appear alongside the figures, rather than being buried in general notes.

If outlet formats differ, prepare separate schedules. Do not mix kiosk costs with those of a full-sized shop and then publish a single minimum figure that does not represent the format actually being offered.

When using a range, explain what drives it. A range based on floor area is more useful than a broad range with no clear basis. Also state whether applicable taxes are included, so readers do not assume every price is the final amount payable.

3. Make the cost breakdown part of clear disclosure

Malaysia regulates franchising through the Franchise Act 1998 (Act 590), as amended. The prescribed disclosure document includes a breakdown of initial investment costs, ongoing payments to the franchisor and information on whether supplies or materials must be purchased from specified sources.

Under section 15(1), the franchisor must provide a copy of the franchise agreement and disclosure document to the prospective franchisee at least ten days before the agreement is signed. The cost schedule should therefore not simply be sales material kept separate from formal disclosure.

Prepare a schedule that clearly shows:

• Costs paid directly to the franchisor.
• Costs paid to suppliers or other parties.
• Mandatory and optional purchases.
• Items excluded from the package.
• Recurring payments that begin during the preparation period or after opening.

Phrases such as ‘complete package’ need specific clarification. If rental deposits, additional building work or travel for training are not included, state those exclusions explicitly.

The cost schedule is not a substitute for the agreement or the prescribed disclosure document. Have a franchise legal adviser review it to ensure that the cost information meets the relevant requirements. If cost changes involve material amendments to documents supporting franchise registration, check whether prior approval from the Registrar is required before using the amended documents.

4. Establish how changes will be managed before opening

Initial estimates may change once site measurements, technical inspections or final quotations are available. Put a written procedure in place to manage these changes, rather than simply asking franchisees to accept additional costs through a brief message.

Each proposed change should state the reason, the additional cost or saving, who will pay and its effect on the opening schedule. Obtain written confirmation before making commitments, subject to the agreement and applicable legal obligations.

Appoint a coordinator to maintain the latest cost schedule. After the outlet opens, compare estimates with actual expenditure and record the reasons for any differences. This information helps improve estimates for future prospective franchisees without treating one outlet’s experience as a guarantee for every location.

Practical action: build an opening cost schedule that records pricing evidence, the payment recipient, exclusions and assumptions for every item. A schedule that can be explained line by line is more useful than an attractive package price that is difficult to verify.