Opening up a business in a franchise is a common route small business owners take; it’s already an established name brand that allows owners to find their financial footing faster. But there are some things to consider before seeking franchise funding to ensure the greatest chance of success; jumping in headfirst can lead to financial complications and administrative issues. Cover all your bases beforehand to make sure you have everything you need to make sure your location is the best it can be.
Understand Your Credit Report
Funding starts with realizing how good or bad your credit score is; the better the score, the easier it will be to get funding from loan offices. Knowing your net worth will give you power during discussions for loan amounts, interest rates, and term limits, leveraging your good standing for a better deal.
It’s also important to know if you have a bad score weighing you down. There aren’t many ways to circumvent that; a bad credit score is difficult to fix, but it does inform your path moving forward. Be aware that a lower credit score does not necessarily eliminate traditional startup small business funding options, but it can make it more challenging to secure.
Outline Your Business Plan
After you know your personal financials, establish a plan for your franchise business. This step outlines the local competition, your marketing strategy, how the company hierarchy works, and your expected budget. Luckily, as an established franchise, much of the planning is already figured out, but you still need to make your case for the budget.
This is the most important step. You need to make sure you don’t underestimate your projected budget, or else you’ll run out of funding too early. Conversely, you don’t want it to be too high, or you risk scaring off potential investors. Know what you need and present your case to secure the amount you need for a successful location.
Using Your Own Capital
There may be times when you need to invest your own money into a location, whether it’s necessary to compensate for a lower loan amount or to engender investor trust. It’s easy to get carried away with providing your own money, but you need to protect it in order to protect yourself.
Avoid dipping into retirement accounts, and never use more than 75 percent of your own wealth. If you don’t, you’ll dig yourself into a financial hole that’ll take years to get out of.
Go In Prepared
You need to start the financial process already aware of the considerations for seeking franchise funding. If not, you risk a high likelihood of not finding the necessary funds. Know your business plan, and don’t sabotage your location with inadequate loan amounts or inflated interest rates. You need to protect your business as well as yourself from financial ruin.
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