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Get
out your calculator…
So
you've done your research and narrowed down the field
to several franchises you'd be interested in operating.
But before you buy a franchise-or any business for
that matter-you should have a realistic projection
of sales, expenses and profits and whether or not
they match your financial capability. An investment
can go for as little as $10,000 for maintenance franchises
to as high as several million dollars for a hotel.
1.
Determining My Financial Capability
In order to measure the viability of the franchise
investment you are interested in, you need to determine
the following:
Net
Worth (total assets minus total liabilities) -
examined by franchisors with minimum net worth requirements;
also provides an indication of your ability to finance
your investment
Liquid
Capital - assets easily converted into cash
Other
Personal Financial Obligations - debt that must
be paid regardless of how well or how poorly your
franchise performs
The
Minority Business Development Agency (MBDA) provides
the following worksheet for you. It is also available
in a downloadable PDF
format here.
2.
So How Much Should I Invest?
Don't
invest everything in a franchise.
When calculating your financial capability, you should
always remain conservative, and when you finally come
up with your net worth, do not be foolish enough to
spend it all. Expect initial investment fees to exceed
estimates, and sales and profits projections to disappoint
you. In fact, many franchisees do not make money in
their first year so having enough money in reserve
is vitally important.
Be
wary of financing arrangements.
Finance charges and interest are real cash flow burdens.
If you cannot afford to pay a substantial portion
of the initial investment up front, you might want
to reconsider your decision to buy the franchise.
Be careful about using things that are important to
you as collateral for financing, such as the roof
over your head. Also think twice about asking a loved
one to bear risk with you by being a co-signer or
guarantor of debt.
Next:
UFOC Analysis
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