When it comes to franchise financing, you have various options. To determine which is best for you, ask yourself the following questions.
1. What is my budget, including business and personal?
You should know how much the franchisor demands for the initial franchise fee. In addition, you must budget for business expenses such as a real estate lease, business permits, overhead, inventory, and payroll. Also, keep in mind that you will need to budget for your own pay and unexpected costs.
2. When do you expect to be profitable?
While there is no specific schedule for creating a profitable business, you may get an idea of how long it should take based on the experiences of other franchisees. Talk to as many people as you can so that you can plan your budget correctly.
3. How is my credit rating?
If you have a good credit score, you should have an easier time receiving a small business loan. If your credit isn't outstanding, start working on improving it now so that you'll be in a better position in a year or two. If you do intend to borrow money, assemble all of your financial documentation, including personal financial statements, to make the loan application process go more smoothly.
4. Do I have the money in my savings account?
If you do, congratulations. If you don't want to take out a loan, start saving money now and projecting when you'll be ready to go. Consider temporarily borrowing from your retirement savings, but only if you can assure yourself that you will repay it well before you need it.
5. What’s my net worth?
In addition to credit and savings, a potential franchisor will look at your net worth to see whether you're suitable to become a franchisee. The balance of your assets and debts at one moment in time is referred to as your net worth.
6. What financing options are available to me?
Not every new franchisee has the money to equip a new business completely, and even if they have, taking out a loan to save money is frequently a sensible option. You have numerous financing alternatives to choose from depending on your credit history. Your franchise consultant can assist you with the many financing alternatives available.
7. Will I want to take on investors?
If you're considering using an investor to receive a financial injection, keep in mind that the investor will own equity in your business and thus have a say in some of the business operations.
When it comes to financing your franchise investment, you have various options. Your answers to the above questions should help clarify the direction you should take.
If you have questions about financing your franchise investment, please schedule a brief call here.