Questions You Need to Ask Before Financing Your Franchise
Are you serious about being your own boss by investing in a franchise business? If yes, then you need to have sufficient finances to run a business. Obviously, not everyone has lakhs of rupees in their bank account waiting to be invested in a franchise. If you don’t have adequate capital to invest in a franchise, don’t assume that you can’t become a franchisee. Note that you’ll get a plethora of options to finance your franchise. To know which option can be right for you, ask yourself some questions. Read this article to know the type of questions you need to ask yourself before financing your franchise unit.
Before you plan to invest in a franchise, you need to do extensive research regarding which type of business you can operate easily. Also, it is advisable to invest in a franchise that has good brand image and is capable of sailing through economic slowdowns. So, in which type of franchise do you want to invest? If you have entrepreneur skills for running a school/institute, then investing in an education franchise in India can be a viable option for you. For sure, you need money to run a franchise business. But, before you finance your franchise, don’t forget to ask yourself some questions.
Here is a list of questions you need to ask yourself before financing your franchise:
- What is my budget (Both personal and business)?
For sure, your franchisor will tell you about the initial franchise fee. However, you need to estimate the budget for several business expenses like business licenses, real estate lease, overhead, salary expenses, inventory etc. Also, don’t forget to cover your income in the budget and plan for some unforeseen expenses.
Note that you won’t be able to make profits in the first few months after setting up a franchise. Therefore, in the first few months your goal should be to break even. So, make a budget for the initial year and include all expenses. Make sure you have adequate money so that you will not run out of money in the initial year. Thus, it is essential to estimate the amount of capital you can invest in a franchise.
- When will a franchise unit start earning profits?
Well, there’s not any certainty when a franchise unit starts earning high profits. But, you can link with other franchisees to know how much time a franchise takes to make profits. So, try to talk with as many franchisees as you can. It can surely help you to calculate your budget. You may get saddled with heavy business loans to operate a franchise unit. Therefore, it is essential to contact other franchisees to know the exact expenses they have made. Also, ask them the percentage of profit they are earning every month.
- What’s my credit score?
You may need to borrow loans from the bank to run your franchise business smoothly. Let us tell you that you need to have a good credit score to get your loan approved. In case you don’t have a good credit score, then start building a good credit score. Moreover, you need to gather all the financial documents and statements to make the loan application process easy and smoother. So, try to keep your credit score good, if you have plans to borrow a loan from the bank to run a franchise business.
- Do I have adequate savings in my bank account?
If you have sufficient money in your bank account, then it’s fantastic. Having hefty savings can save you from borrowing loans from the bank. However, not everyone has enough savings to start a business. If that’s the case with you, then start saving money in your bank account from today. It may take a few years to accumulate adequate capital that is required to start a franchise business.
- What’s my net worth?
Do you know what net worth is? It is basically the balance of your assets and liabilities at a particular point of time. Basically, its the source of your wealth minus the amount of debts you owe. If you have a high net worth, then every franchisor feels comfortable to associate with you. So, do you have a high net worth? If not, then try to build your net worth by making more money and reducing your expenditure. Also, you can seek help from professionals who can guide you to build your net worth.
- What are several financing options available for me?
There are several financing options available to franchisees depending on their credit profile. Go through the following points to know those options:
- Franchisor funding: Your franchisor can provide you in-house funding. Also, there are some franchisors who can offer funding for a portion of your franchise fee and lease equipment. You may get other financing options. However, don’t choose those options blindly. See the rate of interest before making any decision.
- Bank loan: You can borrow a loan from a bank to run your business. There are high chances your franchisor can help you borrow loans at a low rate of interest.
- How much marketing expenses do I need to bear?
Always remember, you can’t run a business without doing effective marketing. So, ask your franchisor how much money you need to bear the expenses of marketing. For sure, your franchisor will help you to do the best marketing. But, a franchisor will not help you for free of cost. You need to pay him/her a certain amount of money in exchange for the help he/she is giving you. Make sure you have asked about marketing expenses, if you are going to invest in a coaching institute franchise.
These are a few questions that you need to ask yourself before financing your franchise. We hope that this article can help novice franchisees to start a business.