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How can you prioritize expenses in your franchise budget?

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Budgeting is a crucial skill for any franchise owner, as it helps you manage your cash flow, plan for the future, and avoid unnecessary debt. However, not all expenses are created equal, and some may have a higher priority than others. How can you prioritize expenses in your franchise budget and allocate your funds wisely? Here are some tips to help you out.

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1 Start with the essentials

The first category of expenses you should prioritize in your franchise budget are the essential ones, meaning those that are required to operate your business and comply with your franchisor's standards. These may include rent, utilities, payroll, inventory, royalties, marketing fees, and equipment maintenance. These expenses are non-negotiable and should be covered by your revenue, or at least by a reasonable amount of debt. If you fail to pay these expenses, you may risk losing your franchise license, facing legal action, or damaging your reputation.

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Cesar Madeiro

Consultor Expans?o de Franquias na Grendene S/A | Especialista em Vendas
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Para otimizar seu or?amento de franquia, priorize despesas essenciais como aluguel, utilidades, folha de pagamento, estoque, royalties e marketing. Essas s?o indispensáveis para operar e atender aos padr?es do franqueador. N?o pagar pode resultar na perda da licen?a da franquia, a??es legais ou danos à reputa??o. Dica: Negocie com grandes fornecedores por descontos usando o peso da rede. Passo a passo: 1. Liste todas as despesas essenciais. 2. Priorize-as com base na importancia para o funcionamento do negócio. 3. Estabele?a um or?amento para cada despesa. 4. Negocie com grandes fornecedores por melhores condi??es. 5. Monitore regularmente os gastos e fa?a ajustes conforme necessário.??

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2 Plan for taxes and insurance

The second category of expenses you should prioritize in your franchise budget are the taxes and insurance costs that you need to pay as a business owner. These may include income tax, sales tax, property tax, workers' compensation, liability insurance, and health insurance. These expenses are also mandatory and may vary depending on your location, industry, and business structure. You should consult with a tax professional and an insurance agent to estimate your tax liability and insurance premiums, and set aside enough money in your budget to pay them on time. If you neglect these expenses, you may incur penalties, fines, or lawsuits.

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Charles Dean Smith, Jr.

Tax Partner at PBMares, LLP specializing in tax planning and compliance services for small business retail franchises in various industries
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A significant area to budget for is quarterly estimated income taxes. Most new business owners will be subject to a quarterly estimated income taxes going forward or once they are profitable. Make sure to pay these tax payments timely as it helps significantly with cash flow planning and will save them money on penalties and interest which are starting to get significant as IRS interest rates increase. Paying estimates will help greatly each April 15 when you have to file your tax returns. I see too many business owners fail to pay quarterly estimates during the year and then have a major cash crunch at tax filing time. The IRS has estimated tax payment safe harbor calculation rules in place to avoid being subject to underpayment penalties.

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3 Invest in growth and improvement

The third category of expenses you should prioritize in your franchise budget are the ones that can help you grow and improve your business. These may include training, technology, innovation, customer service, and quality control. These expenses are optional, but they can give you a competitive edge, increase your efficiency, and enhance your customer satisfaction. You should allocate a portion of your budget to these expenses, depending on your goals, needs, and opportunities. However, you should also monitor the return on investment (ROI) of these expenses and adjust them accordingly. If you overspend on these expenses, you may reduce your profitability or cash flow.

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4 Save for emergencies and contingencies

The fourth category of expenses you should prioritize in your franchise budget are the ones that can help you cope with emergencies and contingencies. These may include repairs, replacements, legal fees, fines, or refunds. These expenses are unpredictable, but they can happen at any time and disrupt your operations or cash flow. You should create a contingency fund in your budget to cover these expenses, based on a realistic assessment of your risks and vulnerabilities. You should also review your contingency fund regularly and replenish it as needed. If you ignore these expenses, you may face a financial crisis or lose your business.

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5 Reward yourself and your team

The fifth category of expenses you should prioritize in your franchise budget are the ones that can reward yourself and your team for your hard work and achievements. These may include bonuses, incentives, raises, benefits, or personal expenses. These expenses are discretionary, but they can motivate you and your employees, boost your morale, and retain your talent. You should set some criteria and targets for these expenses, and celebrate your successes when you reach them. However, you should also balance these expenses with your other obligations and goals, and avoid overspending or underpaying. If you misuse these expenses, you may demoralize your team or yourself, or jeopardize your financial stability.

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Charles Dean Smith, Jr.

Tax Partner at PBMares, LLP specializing in tax planning and compliance services for small business retail franchises in various industries
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Establish a bonus plan for your employees that is rewards them when they achieve certain results such as good online reviews or improved sales on a particular product offering. Make sure the bonus is well documented and has measurable goals and criteria that can easily be evaluated. Don't make the bonus plan so complicated that employees don't understand it or it takes you too long to calculate the bonus each month or quarter. Make sure that you are rewarding and incentivizing the correct behaviors with goals that are SMART - specific, measurable, achievable, relevant and time-bound

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How can you prioritize expenses in your franchise budget?

1

2

3

4

5

6

1 Start with the essentials

2 Plan for taxes and insurance

3 Invest in growth and improvement

4 Save for emergencies and contingencies

5 Reward yourself and your team

6 Here’s what else to consider

Franchising

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How can you prioritize expenses in your franchise budget?

1

2

3

4

5

6

1 Start with the essentials

2 Plan for taxes and insurance

3 Invest in growth and improvement

4 Save for emergencies and contingencies

5 Reward yourself and your team

6 Here’s what else to consider

Franchising

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