With all the franchise advertisements out on the market today, it gets a little confusing to confirm if you are really qualified for a franchise opportunity. Learning about the structure of a franchise offering and about the terminology before pursuing a franchise is very important. Most advertisements do not constitute an actual offering. Until you review the Franchise Disclosure Document (FDD) you really don’t know the exact details of any franchise opportunity.
Understanding what liquid capital equates too, and calculating your total Net Worth and how it applies to being considered for a franchise opportunity, is very important and can save you a lot of time in your franchise discovery process. All franchise organizations want potential candidates to have stability, both financially and professionally. Having liquid capital or savings to help you ramp up with a business is essential. Ask yourself “What am I going to do if in the first six months of my business I do not turn a profit, what funds will I use to survive?
A common statement I hear about funding a franchise opportunity is “If I have enough capital to cover the franchise fee, will this be enough to get approved for a franchise”. Starting any business requires you to complete a feasibility study to see if the franchise is a good investment and to understand if you wish to proceed with a franchise opportunity you always need to devise a business plan. Starting a franchise requires a franchise fee, considerable investment capital and on top of that initial fee, there are usually marketing and royalty fees and other costs.
Even if you are lucky enough to have all the capital to cover the total investment of the franchise opportunity, this may not be the funding route you wish to take. Capitalizing your franchise opportunity is the most important decision in the franchise decision process. Will I use my own savings? Will I use my 401K fund? Will I take out a loan and which one, what terms? Can I use a partner or get an outside investor?
Being realistic about this financial process is essential to look at before you even approach a franchise. VBS has formed relationships with many franchise organizations and we are always prepared to inform all the Veterans we work with if they are qualified for any opportunity and teach them how to become a better qualified franchise candidate. We educate Veterans about the loan process and use resources to assist them in finding out if they are qualified for a loan to meet the capital requirements of a franchise. Our goal is to be as realistic as possible so the Veteran can clearly understand the risk reward process of owning your own franchise opportunity.
VBS identifies incentives offered by franchise organizations and offers incentives itself to assist Veterans with getting started with a franchise opportunity, but these incentives do not cover total capital required to start a business. You must either have capital, have assets which make you eligible for a loan and have a good credit background to qualify for a loan. Every franchise has different financial requirements to start a franchise and some have low franchise fees and low capital investment requirements, but almost all of the franchises require an investment on your part and you have to be able to define how you will cover this investment.
Outside of the occasional Veteran franchise give-a-way promotion, most franchises require you to at least cover the franchise fee, and secondly be able to have capital to cover the operating costs of the business. Some of those costs are phased in over time with the franchise implementation plan but all the costs are due at some time so funding needs to be in place first before you are awarded a franchise. This is why it is important to have resources such as business mentors, finance specialists, legal support, and franchise experts to assist you with the franchise process. VBS assists Veterans every day with making their business goals feasible and realistic. As franchise brokers we assist every Veteran who comes through the process with current realistic information about the investment, we identify incentives, and we evaluate each Veteran to see if they financially qualify for any opportunity. Nothing can be misleading about a franchise opportunity because franchise organizations have to provide the same franchise offering to every prospective candidate, including the incentives they offer Veterans and those incentives still have to be consistent in their FDD offering.