When a franchise wants to diversify, explore new markets, invest in new machinery or adopt new initiatives it is important to undertake a cost benefit analysis. Let’s explore what is required and why this is needed.
What is it?
A cost benefit analysis will evaluate a business objective with the spend required to fulfil it. It will identify how beneficial it can be for a franchise and what the relevant costs will be. The focus will be on providing a clear structure and rationale on why the spend is important and how the franchise will benefit both in the short and long term.
What is the main goal?
As previously mentioned, the goal for this is to accurately define whether the benefits of undertaking a new initiative will outweigh and have a better return on the costs required to implement it. You must explore all possible outcomes along with identifying if there will be other initiatives which will have a better impact or return on investment.
How is it calculated?
In essence it is a financial comparison of the spend required against the potential earnings to be made once the initiative has been implemented. There are some key steps to take in order to create the analysis:
- Identify the costs – list all the relevant costs that will be associated with the project, every step should have a monetary value assigned to it
- Outline the benefits – be clear on what the expected benefits will be and again assign a monetary value to each one
- Summarise – add everything up so you will have a clear figure for the costs and the benefits.
- Calculate – take both figures and subtract one from the other, if the net benefit is higher than the net cost, then the initiative should be a financially viable one.
The key benefit for a cost benefit analysis is that it can breakdown large decisions into bite size chunks. By segregating this out, a franchise business can be fully prepared in terms of the initiatives and the expected outcomes.
NGI Franchise Funding have a specialist team who can assist with undertaking a cost benefit analysis. We can provide fully impartial advice and then when the franchise has decided on the best initiative to undertake, we can assist further by arranging the business finance needed to complete this.
If you have any questions or would like some help, please call us on 01993 706403 or e-mail hello@ngifranchisefunding.co.uk.