Exciting times, you’ve made the decision to invest in a franchise. Excellent choice, it’s a sturdy business model, a lot less risky than starting your own business, and all-round a good way to grow your wealth. But one of the catches is that it’s far more capital intensive initially than a start-up that you can bootstrap like hell and launch with a couple of thousand rand.
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Since many of us don’t have a couple of hundred grand lying around, here’s what you need to know about pulling some funds together to launch your franchise dream.
Analyse your financial situation
It’s important to rate your financial situation before you invest in a franchise. On the next page you’ll find a cheat sheet and explanation on how to do that. The results are valuable no matter what they reflect.
If you’re in debt, you’ll be able to work towards clearing it and building capital. If you’re in the black, you can determine just how much you can afford to invest, and that will go a long way in narrowing down your list of choices.
Make a list of the current value of all your assets (things you own) and all your liabilities (things you owe).
When you subtract the liabilities from the assets, the difference is your net worth. Carry this process one step further to determine the current value of all your assets that are either cash, or can be converted to cash fairly easily (including assets such as stocks and bonds, retirement funds and home equity).
This cash or cash-equivalent number is called your liquidity or liquid assets. You’ll need to know this and your net worth when buying a franchise.
Establish your maximum investment criteria. Let’s say you identify your maximum investment level as R1,2 million. Making that one decision can eliminate some of the available franchise opportunities.
Related: The F-word
Remember, you don’t want to use it all in your investment: you need to factor in working capital too, which will likely eliminate a few more concepts from the wishlist.