What You Need To Know About Financing Your Franchise.

Not all franchises have the same financial requirements, you’ll be surprised at the options available in your price range, location and desired industry.

You aren’t just granted a franchise, you need to have the right experience, personality and resources.

When you decide to open a franchise you need to face one very big fact, opening a business takes money. While the amount of money can vary from franchise to franchise, you will need some capital to get started. On top of that, businesses can take time to be successful, meaning you must have enough to live off of while it grows. It doesn’t matter if the capital comes from your savings, or from borrowing, it just matters that you have access to it. To help you prepare and get your finances in order here are a few things you need to know.

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Initial Franchise Fees

When you buy a franchise you will need to cover the initial fee. This fee varies from franchise to franchise, and it covers the trademarks, training, operations support and access to the proprietary business model. It also gives you a defined territory where your business will be located. The initial franchise fee is a one-time payment that is determined by the franchisor based on several factors, including your investment range.

Ongoing Royalties

Franchises have an ongoing royalty fee that are due each month or sometimes each quarter. The fee typically ranges between four to twelve percent and is determined by calculating a percentage of your business’ gross sales. This covers your ongoing rights to use the trademarks and franchise system, and your ongoing support from the franchisor.

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Additional Costs

All franchises have initial fees and royalty payments, but there are other costs you may need to consider before moving forward. Some concepts require you to have operating capital to help launch your business and keep it afloat. You may also have to have enough capital to buy a storefront or lease a location, to cover security deposits, purchase inventory or special equipment, and even cover an ongoing co-op marketing system. These additional costs shouldn’t be a surprise either, as they need to be shared with franchisee candidates in the brand’s Franchise Disclosure Document (FDD).

Know Your Current Financial Situation

If you want to open a franchise and be successful at it, you need to figure out what your net worth is. Having a strong understanding of your assets is imperative before moving forward. How much cash do you have on hand, in checking and savings accounts, how much do you have in investments such as real estate, vehicles, stocks and bonds? You also need to know how many liabilities you have, such as current bills, mortgages, loans and other debts. By having these numbers, and subtracting your liabilities from your assets, you will have a good understanding of what your net worth is and a good idea of what you have available to invest in a franchise.

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How To Finance Your Franchise

There are several options available to most new business owners to help you finance your franchise, including banks, private lenders, friends and family, small business loans, government grants and even the franchisor themselves. As with any type of loan however, there are certain requirements that need to be met. Most lenders are looking for three things when deciding if they should lend you money, your stability, income and track record. These items will help them make the best decision about your creditworthiness and how much to lend you.

Once you’ve gone over the numbers and know how much you can invest, it’s time to start looking for a franchise that is right for you. Opening a franchise can be a great first step to beginning an entrepreneurial journey. Click below to fill out a survey and send us your financial information so we can help match you with a franchise that meets your standards and lifestyle goals.

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