How to Start a Franchise, Part 1: Finding Funding
You’ve made the decision to take your future into your own hands by starting a business! Undoubtedly, you’ve heard the franchise model is a way to set yourself up for success. You can benefit from profitable franchises that are already established in the market. With access to a well-known brand name, and proven marketing and operations strategies, you’re getting an entrepreneurial jumpstart. However, as with any new venture, you’re going to need to put in a little elbow grease of your own. There are some essential steps in learning how to start a franchise, and the first task to master is the process of finding funding.
Know Your Financial Situation
It’s probably not a shock that you’ll need to assure a franchisor that your financial health is conducive to starting a business. All the best franchises come with some unique startup costs that you’ll need to be prepared for. Usually, there is a franchise fee that is required per location that you plan to open. In addition, there will most likely be royalties that are due to the franchisor on a routine basis. This is totally normal and is basically how you will be reimbursing the franchisor for using their brand and for the resources that can help you run profitable franchises. You want to know what your capabilities are when it comes to these expenses. This is vital in knowing how to start a franchise.
Franchisors and lenders typically have minimum requirements when it comes to net worth. Calculate yours by first cataloging all your liabilities and assets. Your liabilities are what you owe such as the outstanding balances of your mortgages and loans. Your assets will be items that you own including the cash in your checking and savings accounts, and the value of your house and personal property. When you have this information, subtract the liabilities from the assets; this is your net worth. Moreover, you’ll want to make financial projections to show you understand how to start a franchise and maintain it. This will be included in a business plan, which will be discussed in part two of this series that will follow soon.
Seeking Funding for Profitable Franchises
A lender-lendee relationship can be beneficial to both parties; however, ultimately, the lender is the one taking the bigger risk at the onset. Before they offer you capital, they’ll want to see that the risk is as minimal as possible. Prior to asking for funds, do your research to show you’re going with one of the best franchises. Check out the history of the franchise brand. You want to show lenders that profitable franchises already exist. If you can, talk to current franchisees about their successes. Part of showing that you grasp how to start a franchise requires finding out all you can about your desired franchisor.
When it comes time to finding funding, you’ll see there are many options. Your prospective franchisor may be able to connect you to third party lenders. Furthermore, conventional banks may have loans available at low rates, but remember that you may have to come up with a twenty percent down payment. If traditional lending is an issue, the Small Business Administration offers government-backed loans that are paperwork intensive but often easier to qualify for. Other options include connecting with venture capitalists, angel investors or seeking help from friends and family. You also might want to think about drawing from retirement accounts or looking into home equity lending or a second mortgage.
At Best in Class Education, we not only want to help you become an expert in how to start a franchise, we want to actually give you the opportunity to run a lucrative business. We are one of the top low-cost franchises, and we have relationships with lenders that can assist with your startup costs, fees and inventory. Additionally, we have incentives that cut costs for those who qualify. For example, current or former teachers, as well as veterans can receive substantial discounts. Our goal is to make it as easy as possible for you to begin your life as an entrepreneur!