Is your dream of buying a franchise looking more and more like a reality? Before you invest your money, there are a few financial business items you must knock off your list.
Here are the five financial must-dos for anyone thinking about opening a franchise.
#1. Determine Your Net Worth
Before you make any big investment, you need to know where you are financially. What’s your budget? How much can you afford?
Owning a franchise can be very affordable, starting with an initial investment around $20,000. Or, it can cost you a little more to get going, putting you closer to the $200,000 mark. Knowing what you’re able to invest will help you narrow down to which option is right for you.
To determine your net worth, add up your assets and liabilities separately. Then, take the difference of the two. You’ll need this information when applying to the franchisor anyway.
#2. Decide if You Need Financing and How to Get It
If you’re planning on getting a small business loan to open your store, you’ll need to present a formal business plan to the bank first. In your business plan, the lender will want to see your plan for growth, what you project earning and why you want to get the business.
#3. Talk to Current Franchisees
It’s hard to project growth without having a baseline of sales and earnings figures. Still, many franchise representatives will not (or cannot) give you the answers you need until you’re already invested in starting the business.
Talking to other franchise owners is a great place to start. These people can help you get a grasp of what to expect financially from your store. They’re also a great resource for asking any burning questions that might cause you to hesitate opening your store.
#4. Calculate Extra Costs
Your franchise fee is only a small piece of the investment equation. You also have other costs to consider, such as:
- Initial inventory
- Royalties (in some cases)
To know if you can afford a franchise, you must look beyond the fee to the franchisor itself. Consider all of these costs when making your business plan and deciding on your budget.
#5. What Money is Off Limits?
You’re excited about the possibilities! The last thing you want to think about is losing money.
Considering how much of your family’s personal bank accounts are off limits is important. Will you tap into your family’s savings? How about your child’s college fund? How much are you willing to lose to see this dream through?
Knowing this before you start your franchise will set you up to win. It’ll push you toward your goals and ensure you don’t take risks that could jeopardize your family’s future.
Thinking through your finances realistically is vital to your long term success. By doing these five things before you start your franchise, you’ll ensure you’re off to a good start.