How to Budget for Your First Franchise Location

A Practical Guide for First-Time Franchise Owners

Opening your first franchise location is a major financial commitment.

You’ve paid franchise fees. You’re negotiating a lease. You may be securing financing.

And now you’re staring at one of the largest line items in the entire process: your tenant improvement build-out.

For first-time franchisees, the biggest fear isn’t the project itself — it’s going over budget.

The good news is that franchise construction costs are predictable when you understand what actually goes into them.

Here’s how to budget properly for your first franchise tenant improvement.

1. Construction Costs (The Hard Costs)

Construction costs are the most visible part of your budget. These typically include:

• Demolition
• Framing and drywall
• Electrical and lighting
• Plumbing
• HVAC modifications
• Finishes and other trade costs

These are often referred to as “hard costs.”

Converting a retail shell into a fitness studio, dental clinic, restaurant, or medical space may involve:

• Additional electrical capacity
• New plumbing lines
• Grease traps (for food concepts)
• Reinforced structural elements
• ADA upgrades

The more specialized the use, the more detailed the construction scope becomes.

Getting a detailed, line-by-line estimate during preconstruction is critical. Lump-sum numbers without scope clarity are where overruns begin.

2. Soft Costs (Often Overlooked)

Soft costs are expenses outside direct construction labor and materials. These may include:

• Architectural and engineering fees
• Structural or MEP engineering
• Interior design services
• Permits and plan review fees
• IT and low-voltage installation
• Furniture, fixtures, and equipment (FF&E)
• Professional fees (legal, consulting)

If you’re expanding the building or building a ground up building, there will also be

• Impact fees
• Geotechnical reports (if required)
• Surveying

Many first-time franchise owners underestimate soft costs because they aren’t part of the contractor’s construction contract.

However, they are very much part of your total project budget. Ignoring them creates artificial optimism — and financial stress later.

3. Permits and Municipal Fees

Permitting is both a timeline factor and a cost factor. Common permit-related expenses include:

• Building permit fees
• Fire department review
• Health department approval (for food or medical concepts)
• Utility connection fees
• Inspection fees

Permit costs vary by municipality and project scope.

More importantly, permitting delays can affect your rent-free build-out period. If you haven’t budgeted adequate time, delays can indirectly increase your financial exposure.

Budgeting for both permit costs and permit time is essential.

4. Franchise-Required Finishes and Brand Standards

Franchise systems typically provide detailed brand specifications. These may include:

• Specific flooring materials
• Approved lighting packages
• Branded millwork
• Signage requirements
• Color standards
• Equipment placement requirements

Corporate prototype drawings are helpful — but they often need adaptation to local code and site conditions.

Franchise-required finishes can increase costs compared to generic commercial materials.

Budgeting properly means pricing the actual brand-required materials — not substitutes — early in the process.

5. Contingency Planning (The Safety Net)

This is where many first-time franchisees struggle. They want a precise number.

But construction involves unknowns — especially in existing commercial buildings.

Common unknowns include:

• Hidden plumbing conflicts
• Electrical panel upgrades
• Structural modifications
• Code corrections from previous tenants

A reasonable contingency — often 5–10% depending on scope — protects your project.

Contingency is not a sign of poor planning. It’s a sign of realistic planning.

6. The Real Goal: Predictability

The objective of budgeting for your first franchise tenant improvement isn’t just accuracy. It’s predictability.

A structured budgeting process should:

• Provide a detailed scope
• Clarify allowances
• Identify potential risk areas
• Align construction schedule with your rent-free period
• Minimize change orders

When budgeting is thorough, your build-out becomes a managed investment — not a financial gamble.

Final Thoughts for First-Time Franchise Owners

If this is your first location, remember: construction isn’t where you want financial surprises.

Early preconstruction planning protects your timeline, your financing, your stress level, and your grand opening date.

A franchise tenant improvement is one of the largest investments you’ll make in launching your business. Budget it carefully — and it will support your success long after opening day.

Planning Your First Franchise Tenant Improvement?

If you’re still evaluating a space or negotiating your lease, it can be helpful to understand realistic construction costs before final decisions are made.

At Sun Gate Construction, we work with first-time franchise owners to review spaces, identify potential cost drivers, and provide clear budgeting guidance early in the process — so there are fewer surprises later.

Even if your project is still months away, having clarity now can protect your timeline and your investment.