One of the biggest mistakes a person does is, taking no time to learn about how to finance the new business. This may lead to the failure of business. In order to adequately fund your franchise purchase, it is required on your part to pursue franchise financing. There are loans available for franchisees, however, it’s is crucial to know about the following things before getting started with the financing.
NET WORTH AND BUDGET:
Before you pursue franchise loans, what you need to know is your net worth. A high net worth gives a good financial strength to the company. Similarly, a low net worth indicates weaker financial strength to the company, thus directly affecting the company’s ability to raise funds from the market. In order to determine your net worth, you need to create a balance sheet with your assets such as Cash on hand, checking and saving accounts, real estates, automobiles, insurance cash values, bonds, stocks, etc. Besides assets, listing up your liabilities is also equally important. Entire capital that you owe under your liabilities such as home mortgage, auto loans, student loans, current monthly bills, company loans, hospital and credit card debt have to be included. Business expenses like real estate lease, overhead inventory, and wages need to be known before making a budget for sure. Since, you are not assured that you will make just profit in the beginning of your business, you should make a budget, at least for the 1st year. The budget should be inclusive of all expenses elsewise in the long run u might need to shut your business because of the heavy loss.
THE FINANCING OPTIONS:
In order to launch a business, capital investment is required. For the expansion of business, what is needed is funding. In the beginning, you can self-finance your business. Investing your own money is the best option for the new entrepreneurs. In the long run, you can easily opt for the business loan and the lender will not have a reason to deny it since considering the stability of your business will be the low risk factor for them. Other way is that you can loan from the banks, small business loans from NBFC- Non banks Financial companies and MFIS- Micro Finance Institutions. These banks can help you to get business loans for your startup based in your requirements, without having credit score or financial history.
Of all the loan products on the market, one of the most desirable option for aspiring franchisees tends to be the SBA loan. As a franchise owner, you will step right into the franchisor`s unparalleled resources, stability and proven business model, but you will also enjoy the autonomy of small business ownership and an SBA franchise loan is a great way to get you there. It’s important to carefully consider your chances of being approved for SBA loan before you spend significant time pursuing a financing option that may be unreachable for the current stage of your franchise.
Crowd funding is the use of small amounts of capital from a large number of individuals to finance a new business venture. You might choose to setup and promote your own personal crowdfunding page or look towards specific organizations that crowdfund for businesses and franchises. There are also websites that crowdfund for specific industries and business types, which they then lend those funds to people in need of financing.
FAMILY AND FRIENDS LOAN:
There is nothing wrong with starting a business with a family or friend loan. It is quite a common way to finance a franchise. They know you better and with them there will be more flexibility with the lending terms. If you choose to take loan from a friend or a family member, make sure you make a contract which includes repayment terms and expectations. If everyone understands the agreement before signing; breakups and disagreements will be less . Being the owner of a franchise is a good opportunity to begin as an entrepreneur. You get to try your hand as a business owner with the safety net of a large corporation behind you and you will be ready to get your franchise up and running in hardly any time at all.
TIME TO GENERATE MONEY:
The central goal of any business is to make profit and there is no exact time for a business to make profit. Roughly calculating, any business takes two to three years to make profit. According to the entrepreneurs, any new product takes at least three years generally to make profit. There is the cost of adding a partner or experts to the wages to produce products as well as marketing costs, among other expenses. Patience and perseverance are the keys to success for any businessman. The adverse effect is seen in a tele-communicating business in which profit is generated immediately as it requires little money to start up. As marketing and product costs are included, it`s not appropriate to say that all online business`s starts generating profit in the beginning. Each business`s profitability timeline will differ so its important to do the math to see when your business will make money. According to forbes, this formula is called a break-even analysis. A break-even analysis is a standard part of any business plan, that means, it is done before the business is even established. The U.S. Department of commerce recommends this free online calculator to figure out your break-even point (BEP).
My name Is Dhinal Baxi and I am from Ahmedabad, Gujarat, India. I am a founder of franchise Insider . As a founder, we have served hundreds of clients. My experience from the financial sector has helped them to achieve great success in the franchise world. Franchise Insider is one of the leading franchise advisory and consulting company.