Looking to become a franchisee? This is a lifelong ambition for many entrepreneurs as it can be incredibly rewarding and potentially lucrative work where you are able to quickly dominate the market if you can find success. However, many people make the mistake of underestimating the cost of setting up a franchise which can create serious financial issues as you will struggle to get off the ground and build a positive reputation.
So, how can you raise the funds for your franchise and protect your investment? Read on for a few tips for franchise investors.
Identify capital needs
First, you need to identify your capital needs so that you know how much you need to raise. Your initial investment will only take you so far and your costs may be different depending on a wide range of variables. An experienced franchisor, realtors and other professionals should help you to determine the capital that you need to raise.
Help from the franchisor
You should speak to your franchisor before approaching other lends as you may find that they have internal programs which can help with getting franchisees involved, which could include leasing programs for land or deferral of certain fees to the franchisor.
Next, you will want to determine your net worth with a personal balance sheet that contains your assets and liabilities. After this, you should work out your credit rating and take steps to improve it if necessary before putting together a thorough business plan. You can then use all of this information to approach lenders and hopefully borrow what you need to get up and running. This could involve approaching friends and relatives, home mortgages, bank loans, finance companies and crowdfunding.
Protecting your investment
In order to protect your investment, there are a few effective methods to use. First, you should make sure that you never invest more than 75% of your cash reserves as this can be a huge risk. You should also always speak to the franchisor before searching for outside financing and look for lenders that understand franchising.
It is also worth looking to lease real estate from a specialist like Avison Young in order to find the best premises for the best costs. Leading on from this, it is also an intelligent idea to lease equipment instead of purchasing it to save on startup capital and improve the appearance of your balance sheet. Alternatively, you could purchase these items and other assets second hand in order to reduce costs.
Becoming a franchisee can be a smart move for an entrepreneur but it also poses a few unique challenges to overcome. It is vital that you have enough capital to get started and you must also take steps to protect your investment with the above information helping you to achieve this.