How a Franchise Agreement and a Franchise Disclosure Document differ
There are two documents that are of vital importance...
Many people start a franchise in Canada without having thousands upon thousands of dollars just sitting in their bank account. You don't have to wait until you are rich to start your own business as there are likely financing options available to you. Before you decide how to finance your franchise, here is what you must ask and answer for yourself.
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What is my budget?
You likely already know what your franchisor wants for the franchise fee. However, you will also need to budget for expenses applicable to your business, such as licenses, a real estate lease, payroll or inventory. You will also have to include your own salary and an emergency fund in your business budget.
In the early phases of your franchise, you probably won't make a profit. Therefore, you need to have a budget for at least that first year that includes all your expenses, including your own salary. This is necessary if you want to avoid the possibility of having to shut down or sell your franchise because you run out of money.
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How long will it be until profitability?
There is not going to be an exact timeline you can count on until you begin turning a profit. However, you can get an idea of how long this may take via the experience of other franchisees. Speak to as many current franchisees as you can so you can build a realistic budget for yourself.
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What does my credit look like?
The better your credit history and score are, the easier it will be for you to get financing from a lender at a reasonable rate. If your credit isn't so great, work on rebuilding it now so you are in the best position possible when you do apply for financing.
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What is my net worth?
Nearly all franchisors have a net worth requirement. Evaluate yours so you know whether you can meet the franchisor's minimum. In essence, your net worth is everything your own minus any debts you have.
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Is a partner a possibility?
There are investors out there who will finance businesses such as yours. However, you have to keep in mind that this means the investor will have a stake--and possibly some ownership or management rights--in your business. Before you consider taking outside investments from private parties, be sure you are willing to honor the terms of that financing deal, even if that means the investor has a say in how your business is run.
