Financing Your Own Franchise Business

asked about 2 years ago

Buying a franchise can be a realistic dream for many and it is important to understand the importance of financing your own franchise.

To give yourself the best opportunity of success in business, it is important to have a clear understanding of your financial position before launching in to purchase your new franchise. With enough savings and a handle on your net worth, financing that dream franchise may be within your reach.

Associated Costs of Buying a Franchise

Start-up costs are associated with any franchise you might buy. These include franchise fees, fit-out of a premises and/or equipment, training costs, insurances and legal and accounting costs.

Buying a franchise can range significantly, anywhere from under $50,000 up to $2 million plus. On average, the initial franchise fee is usually somewhere between $10,000 and $50,000. However, if it is a requirement to purchase real estate as opposed to leasing real estate, the initial franchise fee will be significantly higher than this.

It is in the Franchise Disclosure Document (FDD) where all associated costs and fees for purchasing a particular franchise will be found. These, by law, must be clearly stated for the potential franchisee. Item 5 of the FDD identifies the initial franchise fee amount. Item 7 of the FDD is where all other associated costs will be identified. Along with those associated costs listed above, other costs a franchisee must pay up front might include inventory, software and marketing costs relating to opening of the location.

The Need for Savings

Few people are able to finance the purchase of a franchise without financing a percentage of the overall up-front costs. This is where personal savings comes into play. Lenders, while there are several who specialize in lending for purchasing a franchise, will not be willing to lend to someone who is not able to show some amount of personal savings.

Whether your personal savings is from a redundancy package, long-term savings, an inheritance or any other source, a lender will need to have a clear picture of your assets and liabilities to see your net worth. As a general guideline, you should be able to afford around 20 to 25 percent of the total up-front cost of the franchise with your own money.

Understanding your personal financial position will help you decide which franchise would best suit you. In order to do this, you need to seek the right financial advice.

Seek the Right Financial Advice

There are many financial advisors, brokers and lenders who may offer to help. However, Derek Cafferata, CEO and President of franchise experts All State Franchise Finders, recommends seeking the advice of a financial expert who specializes in franchising.

“There are a number of options a potential franchisee has when it comes to financing the purchase of a franchise,” says Derek. “However, a franchise expert will know the tips, guidelines and pitfalls and advise you accordingly in order to help you achieve your business goals.”

Choose the Right Franchise

As well as seeking out the right financial advice, it helps to utilize the knowledge and experience of a franchise expert to help you choose the right franchise. While your net worth, your savings and your ability to source lending will have an influence on which franchises you can choose from, a franchise expert will also help guide you in finding the right franchise to suit your career, personal and future goals.

“At ALLSTATEFF.COM, we work with each potential franchisee to find the franchise that offers him or her the best fit,” says Derek. “With many years of experience in the franchising industry, our team at ALLSTATEFF.COM have refined the process of franchise selection, financing and start-up very successfully.”

Contact Franchise Experts ALLSTATEFF.COM

If you are considering moving into the world of franchising and looking to purchase a franchise unit, be sure to contact Derek Cafferata and his team at ALLSTATEFF.COM on 1-800-544-2161 or visit today. ALLSTATEFF.COM are your franchise experts!