There are infinite sources of financing available to help you launch the franchise of your dreams. However, operating a franchise with no reserves and blinding yourself to unexpected business problems can lead to disaster. A good rule to remember: Never invest more than 75 percent of your cash reserves. If you have $10,000, invest $7,500. If you have $25,000, invest $18,750.
More important, remember that the price of a franchise doesn't always reflect the actual cost of the business itself. Additional costs can include down payments on the land, building, equipment, fixtures and signs, and can cover inventory, leasehold improvements, training, opening promotional costs, administrative costs and even sales commissions.
How One Franchisee Found Financing
Be sure you understand the requirements of your cash investment. You will need a "pillow" of working capital to properly guide the business through its ups and downs. If you do your homework thoroughly, and remember that financing a business is the most important sale you'll ever make, then you'll be head and shoulders above the competition.
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When 40-year-old Douglas York decided to purchase a Great Clips franchise with his wife, Frances, he found his best financing bet was with a nonbank lender.
"When we got into Great Clips, you could do three stores in two years [as a discount package]," says York, who opened the allotted stores in 1998 and 1999 in the Jacksonville, Florida, area, surpassing his commitment with a fourth location in July 1999.
York had to come up with $120,000 for each location and decided to go with the nonbank lender his franchisor recommended. "Textron Financial gave us a loan based strictly on equipment without a ton of paperwork," explains York. "I did talk to banks, but they couldn't offer anything better than Textron, and with Textron, I didn't have to put up my house [as collateral]."
To open his first store, York secured $60,000 from Textron by submitting two years worth of tax returns and his personal savings to complete the $120,000 investment. "You shouldn't finance yourself to the hilt," York says. "You have to leave yourself a little room to maneuver."
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