5 Must-Ask Financial Questions Before Buying a Franchise

People invest in franchises because they’re genuinely excited about the opportunity.

It’s a low-risk, more secure way to open a business and become a successful entrepreneur. For many people, the freedom of being their own boss, setting their schedule, and knowing their hard work affects their profits is enough reason to become a franchisee.

Before you commit to investing in a franchise, however, there are important financial questions to ask yourself before you begin. By doing do, you can help ensure you make the smartest and most well-informed decisions with your money and help set a course for success.

Here are 5 Must-Ask-Yourself Financial Questions Before Buying a Franchise:

1. How much total investment will a franchise require? On top of your franchise fees, there will also be the cost of legal fees, overhead costs, and a lease and/or mortgage if you’re operating a traditional brick-and-mortar franchise. Be sure to do your due diligence ahead of time and investigate these costs.

2. How much capital reserves will I need to cover losses? It takes time to develop a steady customer base. In case you’re not selling as much as you’d like at the beginning, be sure to have a reserve of cash to cover salaries and operating costs for a few months. A few months may seem long, but it’s always better to guess high and better manage your risk.

3. How much money will I need to cover my own living expenses? On top of money to cover your franchise at the beginning, you’ll also need to ensure you have enough money on hand for your own living expenses.

4. How long will it take your franchise to break even? For most businesses at the start, you’ll need to keep funneling money in before you make any. As part of your business plan, project when you’ll break even. Be conservative, and be sure to estimate and plan for the worst possible outcome rather than a best-case scenario.

5. What standard and alternative financing options are there? Bank loans and commercial leases are among the most common forms of financing for franchises. In terms of a loan, it will have to be secured through your personal collateral (such as a home equity) or through an SBA-backed loan. For alternative options, family and friends, online kickstarter campaigns, and retirement funds from IRA and 401Ks are also another common way to access funding for a franchise.

To learn more about entrepreneurship through franchising, attend our free monthly webinar, Franchise Ownership as a More Stable Career Path. The webinar is free, but you need to pre-register, which you can do online by clicking on the linked seminar title.

You may also register by calling 866-246-2884.