It Takes Money to Make Money

It takes money to make money, I’m sure we have all heard this saying. It’s true. Every franchise out there has a couple of requirements regarding your finances.? The requirements are put in place to ensure that the franchisee will be ok as the business starts up and grows.

One, they're going to look at your net worth. Two, they want to know how much cash you have on hand, liquid capital. These two requirements are very important, because the franchises understand that the biggest reason a franchise fails is due to undercapitalization.?

Net Worth Requirement

The concern is that the new owner has just enough money to get in the door, and then six months down the road, they run out of money to sustain themselves personally and have to close their business. By setting a net worth requirement and a liquid capital requirement, it allows the franchise to feel confident that you are going to be okay financially as the business ramps up.? And that you are going to be able to sustain yourself personally so that you can still? buy the groceries, make the house payment, make the car payment, and run your business.? Generally speaking the more overhead a business requires in order to open and operate, the higher the initial investment will be and the longer the business will take to get to the point of breakeven and be able to provide an income for the new owner.???

Ready to Ramp Up?

Therefore, depending on the franchise's initial investment and the time that it takes for that franchise to ramp, that's how they're going to calculate what the net worth and liquid capital requirements will be.? Franchises that require a retail location will generally have a higher initial investment and will usually have higher overhead expenses, many times associated with the build out and construction of the retail location and therefore will require a higher net worth and liquid capital requirement.? Versus franchises that are more service in nature that may not require a retail front but can operate from a home office or a small warehouse office and usually does not have inventory to purchase, will have lower overhead expenses and therefore, have a lower initial investment and require lower net worth and liquid capital requirements.? One very important thing to keep in mind? however, is that even if you have a lower net worth and need to start with a franchise that has a lower initial investment that has no bearing on what the potential return on investment will be.? This is no direct correlation between what the initial investment is and what the return on investment will be.???

If you're curious to know whether or not you have the right net worth or you've never calculated your net worth before, message me below and we'll schedule some time to talk and we can identify what your net worth is and what your liquidity is.