Reserve Capital When Buying a Franchise
I have had many calls with new franchisees – both individuals who have already purchased a franchise and those considering a purchase. One critical factor that‚ I can assure you‚ plays a role in a franchisees success is whether or not the franchisee – after purchasing and establishing his or her franchise – possesses enough reserve savings and funds‚ i.e.‚ funds to cover personal living expenses. Consider that a new business requires the investment of capital and the reinvestment of revenues and profits. Without a solid platform whereby you permit your business to grow and you are able to reinvest in its success‚ long-term‚ you may be setting yourself up for failure.
So‚ make sure you possess enough reserve capital so that your personal expenses do not interfere with reinvestment in your business. Item 7 of the franchisors FDD should include an estimate of “Additional Funds” that you will require. Typically‚ these additional funds are expressed in a number of “months”‚ i.e.‚ 3 months of living expenses. If you are buying a franchise you should seriously consider that reserve capital estimates of less than 6 months to be inadequate.
By Charles Internicola November 15, 2012
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