Buy a Franchise with No Money

Being under capitalized is basically not having enough money to run your business and live a life. And buying a franchise with no money is a formula for financial disaster.

If you’re going to buy a franchise, above all, make sure you have your finances under control. Not just your household finances, but the projected financial needs of your business.

To be smart (and to reduce risk) you really should be out of personal debt, have at least 6-12 months of LIVING expenses saved and have 6 months of business operating expenses set aside.

I know, that’s a lot to ask. But think about it, most businesses FAIL because of cash problems. By far, the biggest reason for businesses going bust is lack of cash to keep the business moving ahead. Don’t be under capitalized. Here are two things you must have completed:

Get your Personal Finances in Order.

Digging out of debt, reduce expenses, and start aggressively saving.

Dig out of Debt. Pay off credit cards. Pay off car notes, student loans, even second mortgages. Plus anything else that “burdens” your budget.

Reduce Expenses: Look for leaks in the budget. Easy to trim categories are dining out, entertainment, and groceries.

Aggressively Save: Open a savings and stash as much as you can away, now.

Get Accurate Franchise Projected Financials.

Research franchise financials, review Item 19 of the FDD, and develop a proforma with the help of a CPA.

Research Financials: Review Franchise Disclosure Document (FDD) and contact existing franchisees that are willing to validate start-up and operating expenses.

Review Item 19: In franchise FDD’s, there is a section that states Earnings Representations. Not all franchises disclose this item. The ones that do, provide a wealth of information for determining projected financials.

Develop a Proforma: A proforma is a future financial picture of a business. My forecasting potential revenues and expenses, you should be able to get a handle on the level of profits a business will provide.

Many potential franchise buyers falsely assume that by buying a business they will have immediate cash flow. Their assumptions are wrong, and in some cases, devastating. Make sure you have your finances in order and consider using the assistance of a franchise consultant who can assist you with researching a franchises financials.