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Franchising and Your Financial Game Plan

Written by: Rick Bisio

Article Overview: This article discusses the importance of setting your financial expectations early in your due diligence stage. It discusses invest ranges, income expectations and the role of earnings in your business plan.

Franchising and Your Financial Game Plan

Here are a few tips to help you invest wisely.

1. Be sure you are investing within your financial limits. That does not imply investing 100% of your net worth. It means figuring out how much you can afford to invest. You need to take into account the initial investment and the estimated amount of operating capital you will need until the business sustains itself. You also need to add the amount of money you will need to cover your living expenses until the business can support you.

Most people should not invest more than 50% of their net worth. By maintaining your investment at a level you can afford, you minimize the risk of being overextended.

2. Estimate out how much money you will need.
Hope is not a strategy for success. Do your homework. Speak with franchisees. Find out how much they make, and understand their answers. Do they pay for their Smart Car through the business? How about their spouse’s Mercedes? Wining and dining customers? Home phone bills? What else? This is difficult for many prospective franchisees to figure out. For detailed franchise information on this subject, review Chapter 12 of my book.

When you know what you can invest and what you are likely to make, you need to determine if the franchise you are considering will give you the potential to achieve your financial objectives.

3. Know the price of growth.
First check if the franchise you are investigating is scaleable - not all franchises are. If the franchise is scalable, you’ll need to determine the cost of growth. Growth might mean additional store fronts, more equipment, more employees, etc. You need to be able to estimate how much that will cost. Plug these numbers into your 3-, 5- or 10-year business plan. This will help you determine your long-term potential in the franchise, and will help you determine if you are willing to reinvest some of what you make.

4. Choose how you will deal with the money you make.
When your business makes money, there are three things you can do with the money.
1. Pay down your debt - thereby increasing your future cash flow;
2. Invest in business growth - thereby increasing you future gross income
3. Take the money home - thereby maintaining or increasing lifestyle.

Your preliminary decision on how you will treat the profits should tie into your long-term goals. If you choose to grow the business, you can’t buy a new home or a new boat. If you decide to purchase a new boat, you cannot invest as much in the future growth of the business. This is a zero sum game and you need to know your priorities.

When you own any business it is decisive to understand the financial aspect of it. This is unknown territory for many potential franchisees, but with some studying and a good strategy, you will be on the right track to reaching the goals you set for yourself.

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Article Tags: amount of money, business plan, financial objectives, franchise information, franchises, home phone bills, homework, hope is not a strategy, how much money, initial investment, living expenses, mercedes, net worth, prospective franchisees, risk, smart car, store fronts, wining and dining



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