Before you decide to open a franchise you need to do your research and review all of the statistics. Once you’ve done this, the next thing you should ask yourself is how you will finance your business venture. You will need to pay inventories, salaries and working capital, so you’ll need to know where this money will come from before making a final decision and/or sign any contracts.
Are Your Personal Finances in Order?
First things first, are your personal finances good? What is your net worth? If you’re uncertain they’ll need to be assessed first, regardless. Believe it or not, it’s rather easy to figure out. To do this you’ll need a balance sheet. You can either create it or find one online. The two parts of your balance sheet should include:
Assets: Anything you own which includes cash, chequing/savings accounts, cars/other vehicles, real estate and stocks and bonds.
Liabilities: Anything you owe which includes your auto loan, current bills, loans, mortgages and any other debts (i.e. credit cards).
Once you’ve added these items to your balance sheet in two separate sections, calculate both your assets and your liabilities. Next, you’d subtract your liabilities total from your assets total and this will show you the approximate of your net worth.
Create a Comprehensive Business Plan Before Approaching Lenders
Never approach lenders before you create your business plan in detail. You need to be able to show lenders:
How you will run your franchise
How long it will be before you’ll start to make profit
Not having a business plan, or having one that does not illustrate the above can easily get you rejected by a lender. So, this is something you definitely want to try and avoid.
Creating a business plan can be challenging, so it’s best to seek out professional help. You should also know what a complete plan looks like. Your plan should include:
A study and research of the franchise business your entailing on
Cost analysis of the franchise venture
Estimates of your working capital
Projections for your debt, income and profits
Your plan for advertising and/or marketing
Lenders and Your Stability, Income & Track Record
It’s extremely important to understand what lenders are looking for ahead of time, so that you’re fully prepared on the expectations. There are three main things that lenders look at:
Stability - shows lenders that you can achieve financial goals and/or complete a project, thus following through on the decisions you make.
Income - having a stable income and being able to pay your bills on time is essential, otherwise lenders may see you as a risk.
Track Record - lenders will contact Equifax and TransUnion credit bureaus to obtain a copy of your credit report. They’ll be looking to see if you have any delinquencies or late payments in the past. If you do this could put you at a higher risk in the eyes of most lenders.
These three factors will help lenders in determine if you’re credit worthy. To connect with various lenders you can speak to a qualified mortgage broker today.
There are a number of financial sources available for you if you’re hoping to open a franchise business. The first is the franchisor, who is selling you the rights to use their brand. These loans can vary by franchise/franchisor.
There are several other financial options out there if you need a little bit more financial assistance. Speak to a mortgage broker to discover your options based on your circumstances.
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