Franchise Business Finances

After your business plan is ready, it”s time to become a detective. Time to get a list together of a trusted attorney, accountant, and perhaps a close, business-savvy friend who will give you honest information. DO NOT try to absorb all of this on your own!

Use your advisors to carefully discuss the:

  • Start up costs of the franchise

  • License fees for the franchise

  • Leases and Rent

  • Construction and improvements

  • Fitness Equipment

  • Office Equipment for operating the franchise business.

  • Training and Travel costs

  • Franchise operation manuals

  • Franchise on-line resources, such as a support forum

  • How the fitness franchise handles support/help inquiries.

(The franchise comparison grid compares some of these, but you”ll need much more detail than this simple grid provides.)

Evaluate CONTINUING COSTS related to the franchisor such as:

  • Insurance

  • Interest on loans

  • Coop Advertising Fees (Curves franchise and others have this)

  • Training and travel expenses

  • Royalties

  • Do you have to buy supplies from the franchisor?
    In cases where the franchise uses its volume purchasing power, this is a good thing, but if they use it as a way to make money, you can often buy supplies elsewhere. Find out what the rules are and ask specific examples.

  • What are your rights when it comes to renewing your franchise license?
    If your franchise is especially lucrative, for example, does the franchisor have the right to cancel your agreement and sell the franchise to an investor?

  • What are your rights when it comes to selling the franchise later if your life changes?
    What are the restrictions? Can you reveal financial information to the buyer?

Further investigate these companies including their financial statements, and the financial and training assistance they offer. Look carefully at the success and track record of the franchisors, their financial condition, and how much initial capital is required.

  • What is the long-term capital commitment, including facility and equipment lease obligations?
  • What are you contractually obligated to do?
  • Is it better to reduce your own personal liabilities as much as possible, perhaps by forming an S corporation?

The disclosure document (UFOC) should be obtained and read in detail. Research items such as renewal rights, franchisor control and quality control of the operation and enforcement policy.

When you begin to look for financing, keep in mind that any outside funding source is going to want proof that you have carefully planned your business. You can get a lot of guidance from your franchisor on this, but you need to do your research in addition.

Have an accurate idea of what your own assets are — this could be real estate, retirement and savings accounts, vehicles, and other investments. If you have a large amount of assets, financing will be easier.

DEBT VERSUS EQUITY FINANCING

You may also take on investors who buy shares in your business. This is called "equity financing" as opposed to "debt financing" or borrowing money. This means that you may lose control of the business. Any agreements should be in writing.

Notice: Curves and Contours Express offer expedited loan application processes via the Small Business Association. This can help you take advantage of opportunities.

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Thank you to today”s sponsor for the information package.

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