You’re ready to be the boss and you’re confident in your ability to manage your own business. Yet, how sure are you about your ability to afford a business? First thing’s first, find out how much capital you’ll need to turn your franchise dream into a reality. Look closely at Items 5 – 7 in your Franchise Disclosure Document . They will give you a better understanding of your initial costs and ongoing expenses.
Next, get a clear picture of your net worth by comparing your assets and liabilities. Talk to a financial advisor to help you understand what you truly can afford to invest in your business. Don’t forget, you and your family will also need money to live on and pay the bills. Once you’ve evaluated all of that, you will be able to determine what you can afford on your own and how much you’ll need to borrow.
- Personal Savings. Say you’re interested in a low cost franchise or you have a good chunk of change in your personal savings – you may be able to get your business up and running by yourself. Just make sure you don’t break the bank getting started. Keep money allotted for ongoing fees, rent, and any unaccounted for expenses that may arise.
- Loan from a Loved One. If you’re offered a loan from a family member or friend, consider yourself lucky to have someone who believes in you and your dream. Still, treat the loan as you would a traditional loan. Draft a repayment agreement to keep things clearly defined, protecting you and the lender in the process.
- Traditional Loan. With a bank or lender, make sure you have your bases covered. You may be required to show a business plan that highlights management leaders, cash flow, future financial projections and product descriptions. Keep your credit record clean and make sure your business plan is solid before applying.
- Franchisor Financing. If your franchisor offers financing options, compare the rates and terms to those of other lenders to identify the deal that best fits your needs.
- Private Lending. Private loans may not require as much paperwork and may have less stringent credit requirements than traditional loans. However, they may have higher interest rates and stricter terms.
- Personal Property. If you plan to use personal property as collateral to obtain financing – homes, vehicles, boats, collectibles, heirlooms and more – make sure you develop a contingency plan to lower the risk of losing your assets.