Buying a franchise can come with huge benefits in the long run, but it is important to consider the requirements that will be placed on you at the start of the business. Before considering the financial duties that are needed to buy a franchise you should think about if you are a good candidate to pursue this business venture. You should examine your lifestyle and the commitment it will take to run a franchise. Understanding your own personality and skill set is beneficial to gauge your success in the franchise industry. This step will cover the requirements and responsibilities to buy and own a franchise.
Questions to Ask Yourself
Franchising isn’t a suitable career for everyone, but as with everything asking yourself questions will help you determine this answer. Simple questions such as, do you like working with the public? Do you like the idea of being the boss? Are you prepared to work long hours? These questions can help you decide whether you are prepared to take on the task of owning a franchise. Below is a link to an article that will help you dig deeper into your wants and needs in owning a franchise.
Are You a Good Franchise Candidate? #FranchiseBible (entrepreneur.com)
Financial Costs and Requirements
The first question most people have regarding franchise financing is how much it will cost. The short answer is that it varies on the type of franchise. The initial costs could be anywhere from $10,000 to $100,000. This cost depends on the industry or business that you want to invest in, and where you plan on doing business. The initial cost is a one-time fee that allows entry into the brand and the tools and systems of the business. After the entry cost, there are a few more fees that will accumulate. Looking beyond the start-up cost there will be royalties paid monthly or annually to the franchisor that are four to twelve percent of your profits. Working capital costs will keep your business afloat for about six months before you start to turn a profit. You should also factor in the legal and accounting fees, $1,500 to $5,000, for your business. This is not a required expense but is highly recommended. Depending on franchise assistance, you may need anywhere from $1,000 to $100,000 for the buildout of your location. This cost will go towards your physical location (equipment, furniture, security, etc.). Most brands will not pay for travel expenses to training sessions or conferences, so it is suggested that you have $4,000 to $8,000 saved for such events. The lesser costs are the business licenses and permits that can range from $50 to $400.
With all these expenses many people decided to take out a business loan. In the last five years, conditions for loans have become more favorable and easier to finance your business. Most people can’t afford to start a franchise by themselves, and a loan allows them the opportunity to become more financially stable. If you have the financial safety and revenue to start a franchise without a loan, that is perfectly suitable, but often potential buyers will take out a loan at a bank or credit union to support the business in the beginning stages.
Before meeting with potential lenders you should have various documents in place. You should have a resume covering your background detailing your work history and educational background. You should collect all your personal and business financial statements from the last 12 months. This includes your bank and credit statements. It is recommended that you compile your tax returns from the previous three years. The bulk of your financial background will be based on your credit report. Credit reports can be accessed for free at AnnualCreditReport.com, a government site that provides annual credit reports. Your business plan should be outlined and provided to the bank or credit union. Some franchisors provide a business plan outline that you can follow.
A great resource for other financing options is at The Cost to Start a Franchise and Financing Options | Franchise Direct. Here you can find other ways to get loans and start-up funds for your franchise. All these options will likely still require the personal and business documents listed above but may be a better fit.
All franchise owners will be required to sacrifice the majority of their time when starting a business. Usually, as the business owner, you will be the first one in the office and the last one out. You must be willing to fully invest yourself into your business plan. In the beginning, there will be long hours at the business and when you are at home. This could cause a strain on your regular daily activities. However, as your business continues you won’t have to deal with the initial growing pains. You will still have to invest your time in the business, but it will not be as extensive. Time is an important factor of owning a franchise, and something that should be examined in depth before buying.
You should be asking if you have the entrepreneurial spirit to run your own business. Not only does this spirit come from within yourself, but your willingness to follow proven business models and plans. While there will be challenges you face owning your franchise the benefits should greatly outweigh any hurdles. The key to a successful business is all about your mindset. Following proven methods given by your franchisor can only excel you further in your business. Being optimistic about all possibilities and then improving from those results are the skills that you need to run a franchise. Only you can make your business better.
