Moving forward, all aspiring franchise owners need to rethink their current money situation.
That said, it’s not necessarily a bad thing. Call it the prudent thing to do.
(Courtesy of Dictionary.com)
(This post may contain affiliate links. Please read my disclosure policy).
Keep reading to find out why.
Inflation Is Only Part Of The Reason
While it’s true that inflation affects everything from small business loans, to the cost of fixtures franchisees need to purchase for their stores, it’s not the only reason you’ll need bigger pockets in order to buy and operate a franchise now-and in 2024.
The real reason has to do with lowering risk.
Yours.
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How Aspiring Franchise Owners Can Lower Their Risk
If you want to lower your financial risk when purchasing a franchise, you need to start with more money.
Shawn Hessinger, from Small Business Trends, just interviewed me on “Finding A Perfect Franchise.” And part of what we talked about? Money.
Here’s part of what I told him:
I like to see a $450K-$500K net worth, with the ability to write a check for about $75K of your own money before you get an SBA loan, or whatever loan you want to get. So budget, make sure you’re going to follow the rules. Realize that there is risk involved. It’s not risk-free. And finally, be prepared to work harder than you ever worked before. In the beginning, at least.
The reason I’m talking about net worth and franchising is because of the change I made.
Chiefly, I changed what I’ve determined your minimum net worth needs to be to buy a franchise.
And just so you know, I used to tell my clients they needed to have a $350k net worth… at minimum. Now I’m telling my clients (and you) that you need to have $450k+. Why?
So you do this right.
Prospective Franchise Owners Need Lots Of Breathing Room
If you become the owner of a franchise, you’re going to have a lot of pressure on you.
Outside pressure from your spouse, partner, as well as “monthly” pressure from the bank you got your small business loan from. And let’s not forget the pressure you’re going to put on yourself to succeed.
“No pressure, no diamonds.”
– Thomas Carlyle
One way to alleviate some of that pressure is to have enough money in the bank.
For example, let’s say your net worth is $500k, and you’ve bought a franchise that has an initial investment of $200k.
You put $75k of your own money in, and got a loan for the rest. That brings your net worth down to $425k. But how much of that is liquid?
For instance, if you needed an extra $10k to purchase more inventory-or maybe extra marketing for your new business, could you access it within 24 hours? Easily?
What if you needed to put an extra $10k into your new franchise business for 3 or 4 months in a row?
How much would that hurt you, financially?
Could you do it?
Will you risk it?
Franchising Is Not Without Risk
Whenever you’re investing money in something, there’s risk. Plus, it’s hard to know what and who to believe. Especially nowadays.
And when it comes to fluff, misinformation, and disinformation, the internet has it all.
In the case of franchising (unfortunately), you can easily find numerous franchising websites that declare, “Buying a franchise is less risky that starting your own business.” Of course it’s untrue.
Not only that, it’s relatively easy to find franchise “opportunities” that only cost $5,000-$10,000. Really?
Moreover, several franchise websites exist that offer “Franchise Reviews,” that look legit.
Note: Reviews of anything, from cars to franchises, aren’t legit unless there’s no money exchanging hands (which is becoming increasingly hard to tell).
Here’s The Truth
Franchise ownership may be right for you, if:
- You have enough money
- You’re willing to follow lots of rules
- You have the patience needed to build your business slowly and steadily
- You’ve made a commitment to do excellent due diligence
- You’re smart enough to get legal representation before you sign your franchise contract
- Your family has bought into your idea
To that end, if you checked all of those boxes, I invite you to start searching for a franchise to own.
But before you start your search for the perfect franchise to own, watch the video below.
You’ll find franchise buying tips, trends you need to know about, plus a few words about a couple of franchise brands I’m keeping my eye on.
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