Investing in a franchise is a big financial commitment and it is important to consider every angle before taking that leap. Any investment is a balance of risks and returns, and starting a franchise is no different. Being prepared when you go forward with an investment is crucial if you want your venture to succeed.
There is an abundance of franchise opportunities in every field imaginable and each opportunity varies by company and industry, so it is important to research each individual franchise opportunity on top of these basic investment considerations.
Taking stock of your finances before you make a big decision like investing in a franchise is an important part of the process.
Analyze Your Existing Financial Situation
Taking an honest look at your finances is a step you will need to take before you invest in anything, but it is also something that can help you with any financial decision. Making a plan for your finances can show where your strengths and weaknesses are. Take stock of your assets, liabilities, liquid capital, debts, and more to get the full picture.
After a careful analysis of your finances, make a financial plan, which entails setting financial goals and determining the amount of risk you are prepared to take with an investment. Having everything laid out in this way makes comparing franchise opportunities easy because you can automatically judge whether the fees, royalties, startup costs, and returns fit in your plan.
Save an Emergency Fund
More than half of Americans have less than one month’s income in savings, which is far less than what most experts recommend. Indeed, according to the same report, half of Americans cannot cover an emergency for $400 without borrowing the money or selling something.
Before investing in a franchise, financial experts recommend having six months worth of expenses in savings. Not only is this a good idea in case of an emergency, but it also helps during the beginning stages of business ownership, when the franchise may not be making much money yet.
Pay Off Debt Before Investing
In some ways debt is the opposite of an investment. Debt costs you more money the longer you have it, while an investment ideally earns money the longer you have it, so it makes sense to pay off debt before investing in a franchise.
Paying off high interest debt like credit cards can also help with applications for small business loans. Having less debt increases liquidity, which also looks good on a franchise application. In addition, being debt-free is a great way to stop wasting money on interest.
Remain Wary of Scams
As the old adage goes, “If it sounds too good to be true it probably is.” This applies with any financial situation including investing in a franchise. The United States has adopted regulations of the franchise industry that has cut down on fraudulent claims, but there are still unsavory characters who would profit from other people’s gullibility.
Watch out for investment opportunities that claim extremely high returns with little risk and low upfront costs. Make sure to read the Franchise Disclosure Document—a legal document that franchisors are required to present to franchise prospects, showing detailed financial information—and don’t shy away from getting advice from a lawyer or an accountant. A franchise is a huge investment and you can never be too careful.
Find the Franchise Opportunity That Fits Your Needs
As we mentioned earlier, making a financial plan will help you identify the franchise opportunity that works best for your needs. Franchise opportunities vary by industry, startup costs, royalty fees, average revenue, and more.
Additionally, finding a franchise that fits your lifestyle is incredibly important. Some opportunities allow franchisees to work part-time and delegate responsibilities, others require full-time hours from the owner.
We Suggest a Promotional Products Franchise
If you haven’t decided on a franchise opportunity yet, we suggest finding an opportunity in promotional products. Taking advantage of a promotional products franchise opportunity is a smart investment in a growing industry. Promotional products encompass everything from apparel to trophies to things like bags, water bottles, pens, and more. This industry is worth $20 billion, and it is growing.
A franchise that designs, makes, or sells promotional products primarily caters to other businesses. Business-to-business, or B2B, is a huge industry and one of the fastest growing franchise categories. B2B franchises work best when they are an established brand that companies feel they can trust. That is why franchising is so appealing: it is an investment in a company that has experience in its field and helping franchisees thrive.
Whatever the opportunity, making sure all your financial ducks are in a row is an important part of making an investment. Managing finances can be simple by following these basic steps, and an investment can take you even further.
Jenifer Huston is a project manager currently living in Ithaca, New York. Her interests range from photography to technology. She is also interested in writing, reading, and entrepreneurship. Currently she creates content for a promotional products franchise called EmbroidMe.
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