Owning a franchise can be one of the best ways to get ownership experience in almost any industry because you have the benefit of working with a business model with proven success. Financing that purchase, however, can get tricky because you need to look at both initial and ongoing costs, know what funding and benefits you provide, and understand financing options.
Understand the Real Costs
There is a franchising fee that the franchisor expects when buying into the brand, but there are also royalty fees, inventory, and staff to consider as well as business licenses and permits dependent on your location and industry. It is also important to budget in your salary, real estate, and other expenses for the first few months because automatic profitability is not a guarantee for any type of company. This will help you make a realistic budget and determine how much financing you will ultimately need.
Know What You Bring to the Table
When you buy a franchise, you will need to put in some of your own funding for a down payment. If you can pay for the total costs by saving or temporarily borrowing from your retirement funds, then you can avoid finding a lender or investor to help. You will also want to check your personal and business credit, if applicable, to see how much of a risk you pose to potential investors or underwriters. The best thing you can bring to the table, however, is experienced in both the industry and management. This can give you the confidence necessary to reach out to lenders and convince them to take the risk.
Know Your Options
There are three major financing options for any type of business, cash, loans, and investors. Knowing which options you have in each of these areas can help you find the best fit. For instance, if you know that you want a business partner who has a stake in the company, then you can reach out to potential investors. You can also see if the franchisor has financing options and ask your bank of account for a loan.
Buying a franchise gives you the benefit of working with a proven business model and a familiar brand name. This can get expensive, especially if you are looking at equipment heavy industries such as manufacturing or food service. When you know what the projected total costs will be for the first few months, what assets you bring to the equation, and what financing options you have available to you, it can be easier to find the best funding fit for the venture.