Last month, we described why and how net worth is part of the equation when franchisors are seeking prospective franchisees. The requirements vary by brand, but there is no skirting the net worth requirements imposed by many franchisors. Your success is important to their reputation, and the need for a certain level of financial liquidity will affect your success and the franchisor’s ability to continue selling franchises.
These minimums may seem daunting, and building net worth may take some time. But if you are sure you want to proceed with a franchise, you must have the liquidity required. To build your net worth, consider all these steps as you work to qualify for your dream franchise.
Step #1. Build a personal balance sheet.
You must know what you have and what you owe. This is basic, but it is absolutely the starting point. Your balance sheet will be your “net worth scorecard” of your progress and is how franchisors will evaluate your net worth qualification.
Step #2. Check it twice.
Surprisingly, most people underestimate their assets, so it is a separate step. They forget about valuables, collections, old savings accounts, or money owed to them. Sure, true net worth lies more in liquid assets, but your balance sheet still must contain all of your assets.
Step #3. Acquire assets.
If you can have something worth more than it costs, your net worth will increase. For example, if you buy a vehicle for $20k, but it’s worth $25K, your net worth just went up by five thousand dollars. This can be applied to homes, cars, jewelry and other items. They may not be liquid, but they add to your net worth totals.
Step #4. Sell assets.
Consider turning your assets to cash. Maybe you have baseball cards or original toy race cars taking up space in the garage. You included them on your balance sheet, but if you sell them, your liquid asset goal will be closer, and you’ll probably never miss those dust collectors. Technically, this doesn’t build your net worth, but cash in hand is a nice reward and usually feels better than an old box of collectibles that you haven’t touched in years.
Step #5. Look for early gifts.
This won’t apply to everyone, but if you have an inheritance coming soon, that will increase your net worth overnight. And if it will be a while before you receive your inheritance, your benefactor might be willing to give cash now rather than later. It can provide a tax benefit for them and a cash infusion for you.
Step #6. Get back to basics.
There is seldom easy money to be found, so building your net worth demands discipline in the basics. When anyone or any business wants to have more cash, there are three tried-and-true options:
- Make more money. Increase your income so you can have more cash. Maybe it’s time to ask for a raise or take a course that increases your salary level. If you have a business, find more customers, raise prices, and rework your fee structure to bring your goal a little closer.
- Reduce spending. Reaching a goal takes sacrifice. Evaluate where you spend money and cash. While rent or gas may not change much, most of us can cut back on restaurant purchases, vacations, and entertainment. Put away the ATM and credit cards, and see what happens.
- Save more. If income goes up, saving has to go up (not spending). And if income stays the same, put more away every month to build your net worth for franchise qualification.
After you take these steps, you will develop an understanding of how long it will take to reach your net worth qualification level. With diligence and dedication, you can then plan your new franchise application with the net worth you build.