These Steps Can Help You Become a Franchisee Owner Right Now
Interested in becoming the owner of a franchise? Here are the financial steps to take.
Step 1: Inventory Your Assets
Liquid Capital is a term we franchisors use a lot in franchising, so much so that it’s easy to forget that it's not a common word for people who are new to the industry. This describes how much money you have immediate access to, usually in the context of your ability to invest in something new like a franchise business. Liquid capital includes money in your checking and basic savings accounts, and any money you have invested that you could quickly cash out.
It doesn’t include illiquid assets like the person's home, liabilities, like a mortgage or student loans, or investment accounts they don’t have immediate access to (SEP, IRA and other retirement funds). When someone is considering making a big investment like buying a franchise, it’s important to know their liquidity. Liquid Capital Requirement is usually one of the first financial pieces of information you’ll present about your franchise opportunity. Check out our free tool, FranCalc to better nail down the numbers.
Step 2: Estimate The Costs
When you google the cost of a franchise, oftentimes what pops up is simply the franchise fee, which can range anywhere from $1,000 to $80,000 or more. However, that’s just the fee to be a part of the franchise system. The total cost of a franchise, and therefore what you’ll need to invest, includes many other expenses, i.e., buildout costs, equipment, furniture, professional services, training, and so on.
Now, it is important to note that the initial investment may not cover all expenses necessary to get your business up and running, but should act as a pretty realistic guide. Many business models run at a loss for months if not years before they begin earning, and you do not want to run out of capital as a franchisee, so you’ll want to make sure you have some additional funds set aside for any unexpected expenses.
Step 3: Access Additional Support
Especially in challenging economic times, it can be very difficult for franchisees to obtain sufficient financing to cover their startup costs and operating expenses.
Fortunately, there are resources out there for entrepreneurs who are seeking non personal financing for their franchise business, though it can take significant time and effort to secure such funds. If you decide that you do want to obtain financing for your franchise business from external sources, you should: Identify the amount of financing you want to obtain. Make sure you have a good credit rating. And be sure you have a business plan, including a projected pro forma franchise income statement and cash flow projection.
In your franchise discovery process, ask the franchisor if they offer financing, leasing or can recommend third party financing sources. Some franchisors are willing to finance a portion of the initial franchise fee. Also, try to obtain feedback regarding sources of capital from current franchisees with whom you speak during your franchise due diligence process.
Lastly, don’t overlook possible sources of funding, i.e., the franchise registry, friends and family, home equity, bank financing and veteran and minority lending programs.
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