finance-related questions to ask before investing in a franchise


Not everyone can afford to put thousands of dollars into a franchise immediately.

If this describes you, don’t rule out becoming a franchisee just because you lack the necessary launch funds. There are several things to consider and aspects to look at before you can decide how financially stable you are and whether you will be able to afford to invest in a franchise.

Pertinent Questions To Ask

When it comes to funding a franchise, you have various choices. Start by asking yourself these questions that will help you decide which option is best.

1. What are my personal and business expenses?

You are familiar with the franchisor’s first franchise fee requirements. On the other hand, you’ll need to set aside money for things like a commercial lease, permits, overhead, inventory, and employee salaries. Be sure to factor in cash for your income and other expected or unexpected costs.

Your plan for the first year should account for all of your expenditures, including your salary, as you should not expect to turn a profit within the initial months of opening your franchise. When starting a franchise, the last point you want to worry about is running out of money and having to sell or close shop.

2. Have I been able to put any money aside?

If yes, then that’s excellent news. Rather than taking out a loan, begin saving now and estimate when you’ll be ready to invest. Another option is to withdraw funds from your retirement account temporarily, but only if you know, you can pay them back well before you expect to retire.

3. What’s my credit score?

If your credit is strong, acquiring a loan for your small business should be more accessible. If your credit isn’t perfect, taking steps to improve it now will put you in a stronger position in a year or two. Before applying for a loan, you should gather all your financial documentation, such as personal financial statements.

4. How long will it take before I start making money?

No one can tell you exactly how long it will take for your franchise to turn a profit, but you can use the knowledge and experience of previous franchisees to make educated guesses. Discuss your financial plan with as many people as possible. Speak with a franchise consultant and advisor.

You must do this right, as you will be paying off your company loan for a long time. Make sure the solution you select meets your needs by carefully considering your choices and perhaps even comparing different banks or loan programs.

5. How much do I have in savings?

One of the factors a potential franchisor would consider alongside your credit history and financial stability is your net worth. Your net worth is the value of your assets, less your debts at a given time. Simply put, it’s all the money you have coming in minus all the money you owe.

This figure indicates to franchisors how competently they handle financial matters and whether or not they will be able to do so successfully for the franchise. A franchisor will want you even more if you have a significant net worth since it shows you can be picky about the prospects you embrace. Here you can discover advice on how to increase your financial standing.

6. What financing options do I have?

While some new franchisees may have enough money to get their firm up and running, most will need to take out some sort of loan to get everything they need. Based on your credit history, you may qualify for various loan programs. Meet with a financial expert who will be able to steer you in the right direction and help you sort through your alternatives.

Asking all these questions and finding the answers will help ensure that you start on the right foot. If you want more franchising information, contact the experts at The Franchise Institute. You can call us on 1300 855 435 or fill in this contact form, and one of our experts will contact you as soon as possible to answer all your questions and clear any doubts you may have.

Thanks for reading,
The Franchise Institute Team
1300 855 435

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