How to Prep Your Finances for Buying a Business

bankmanager and client

When you're ready to start as a franchisee, there are many steps to take into consideration before you jump in with both feet. Just as with any big decision in life, you have to look at the outcome, how your life will change once this move is well underway, and more. This is true in all areas of life, how your daily schedule or free time will be affected by business ownership, what responsibilities will adjust, and more.

However, in one area of life, you should perhaps prep more than others – your finances. Just as with buying a house or piece of property, you'll need to determine how much you can afford, where the money will come from, and how much you can allocate toward the payment each month. Other factors, such as interest rates come into effect, too. But there's one more step. What makes purchasing a business different than these purchases is that it may or may not be a location, it's an entity. It can be owned by multiple parties. Money can come from many places or many parties, and so forth. All of this should be put into order when buying your franchise location.

Start by working out the numbers. How much do you have and how much do you want to spend? How much does the franchise cost? And how much should be allocated toward getting started? All of this will be outlined by the franchising brand. You simply need to be aware and have a general idea of what's needed and how you'll obtain it.

Where to Start When Purchasing a Franchise

A good place to look in the beginning stages is your credit. How's it holding up? Do what you can to clear your credit or improve your score so that you can create a better outcome when purchasing your business. You can talk to a franchising finance expert about this, or with a financial or banking advisor to provide the most impact for your efforts.

Next, consider how much you can borrow. How does your asset ratio look? Do you have enough collateral to borrow what you need? If not, what's the difference and how can it be obtained? There are an almost infinite number of scenarios as how you can fund and plan your franchise location. The key is to adapt each option to your personal situation.

If you're working with or through investors, they are also a good place to look toward funding advice, too. You might have a single person footing the bill, or many throwing into a pot, and that will therefore have a say at how dollars are used.

Business loans are fairly straightforward, though they can be offset with personal contributions or grant money and/or business scholarships. And when all else fails, a business loan can help tie up loose ends when you need a few more dollars to reach your goal.

Best Steps for Business Finances

Of course, before you can move forward with purchasing your franchise, you'll need to know where its dollars are coming from.

Once you've cleared up your credit, start pitching to investors or applying for local business grants. Talk to an entity such as city council to see what's available in your area and industry so you can work toward applying for outside assistance.

You can also access your own funds that might not be liquid. Programs allow you to use your own retirement dollars to fund a business – without paying penalties – in order to avoid paying high interest rates in a loan.

There is also the option to liquidate your own belongings, such as properties, vehicles, or whatever else you might own of value. While, at first you might not want to get rid of your hard earned items, it's also a quick way to put money toward the career of your dreams. Just be aware of what implications this might have on your credit; be sure to discuss any big moves with a professional before affecting your finances on paper.  

Talk to a finance professional about how to get yourself and your bank accounts ready to purchase a business. This is one of the most important moves you'll make as a franchisee, and planning ahead can better set you up for success.

By Bethaney Wallace | Nov 14, 2019 | General Franchise Information