Many entrepreneurs have a misguided notion that franchising is cost-prohibitive, but this couldn’t be further from the truth. With literally thousands of franchise concepts to choose from, there’s a business out there for all budget levels. During this edition of our “Thriving through Covid” blog series, we’re going to look at how to meet the financial requirements for franchising your way to business ownership.
Franchises award units to those who meet their net worth requirements. This is because they need to ensure their franchisees have the financial health to open and maintain an operational business. Making sure you measure up financially actually protects your investment—and theirs as well. Neither side benefits from a franchise that fails.
Your net worth reveals more than just your personal situation. It’s also a barometer for those in your neighborhood or community—something that’s important to franchisors who are assessing a territory to award. Proving your net worth to the franchisor demonstrates you have the financial solvency necessary to own and operate their franchise. It’s understood that a break-even point will be down the road, and you’ll want to prove you have enough capital to sustain the business until you get there.
Most franchisees don’t fork over a suitcase full of cash to purchase their business outright—though there are a few exceptions. It’s common to expect you’ll require some form of financial assistance to close the deal on a business of your own. The good news is that there are plenty of lending avenues to get you there—including some you may have never considered. It’s advisable to do enough due diligence to find the most ideal funding route for your personal situation, so here’s a few avenues:
Franchisor Financing – many franchise brands offer financing of their own. It can be beneficial to secure just the right amount from the source who is most familiar with the money you’ll need to open, maintain and sustain your new business.
Bank/Credit Union Loans – if you’ve done business with your personal bank or credit union long enough, you should at least investigate the amount and terms they’re willing to offer
SBA Loans – a popular route is a loan guaranteed through the Small Business Administration. The SBA doesn’t make the loan, but rather secures it on your behalf through a network of financial institution partners.
Retirement Funds – 401Ks can be an inviting way to finance your own business, due to several built-in “rollover” tax advantages. However, you should proceed with caution when going this route. You’ll definitely want professional tax and accounting advice to avoid the associated risks.
There’s more to meet the eye when you look into your options for funding the purchase of a franchise. But, meeting the financial requirements to open, operate and maintain a business of your own is a necessary hurdle to clear before you can make those entrepreneurial dreams come true. So, if you need advice, come talk to the franchise consulting experts at FranNet.
“Thriving through Covid” is FranNet’s new series of inspirational articles featuring positive news, business owner profiles, success stories, and educational updates—all of which demonstrate the resilience of the franchising industry. We want you to know that even during this uncertain time, franchising can offer you an alternative path forward—and a new opportunity to achieve success through business ownership.
Check back with FranNet twice weekly for new articles and let us know when you’d like to begin an entrepreneurial journey of your own!