There’s a well-loved myth out there that if you invest your heart and soul into a business, it’ll succeed. While running a franchise does take heart and soul, it also takes grit and proper financing to come to life.
As you’re planning your franchise finances, there are three things you need to consider in order to position yourself for success.
1. Decide On A Set Investment Amount
This is perhaps the hardest part about getting your finances franchise-ready. When you invest in a franchise opportunity, you want to see it through to success. That part is understandable. What’s difficult, however, is knowing when to stop spending.
Many people falter because they take their personal bank accounts into consideration when setting their budget. They don’t separate their business investment from their personal funds, which can ultimately suck their bank accounts dry.
When you’re getting your finances franchise-ready, start by deciding on a set amount that you’re willing to invest in the business. Doing this will eliminate any family tension and help you stay on track to meet your financial goals.
2. Make Your Budget
When you open a franchise, you’ll be met with a host of one-time expenses. Costs, such as the franchise fee, real estate, equipment, insurance, and more, are necessary but they aren’t going to keep haunting you.
As you budget, consider also what you’ll be required to spend every month. Royalty fees, advertising and marketing costs, and operational expenses can add up quickly if you don’t keep an eye on things.
By making your franchise budget in advance, you can plan your finances and be more prepared for whatever comes your way.
3. Determine How Much You’ll Borrow
The rule of thumb in franchise financing is to only borrow around 15% of your net worth. If that’s not enough to cover the cost of the franchise you want to open, you’ll need to borrow the rest.
Borrowing money isn’t quite as simple as getting a large check written to you and setting up a payment plan. You’ll have to put down a percentage of your loan up front. As you’re getting your finances in order, determine the amount of money you’ll need to borrow and research how much you will be required to put down up front. With traditional bank loans, this amount is typically a quarter of what you borrow. Through franchisor assistance programs, it might be less. And with Small Business Administration loans, it might be even less.
Organization is Key
As you pull together your finances, make sure to have a good idea of how much you’ll spend of your personal money, how much you’ll spend up front and each month in your franchise, and how much you’ll need to borrow. Doing this will help you get a better understanding of what you need in order to finance a successful franchise.
Susan Guillory is the President of Egg Marketing & Communications, a marketing firm specializing in content writing and social media management. She’s written three business books, including How to Get More Customers With Press Releases, and frequently blogs about small business and marketing on sites including Forbes, AllBusiness, The Marketing Eggspert Blog, and Tweak Your Biz. Follow her on Twitter @eggmarketing.