Avoid these financial mistakes when starting your franchise business.
It’s so easy for entrepreneurs to get caught up in the idea of starting their own business that their financial priorities drop and they’re left with headaches, heartache or financial loss. We’re making sure this doesn’t happen to you. We’ve teamed up with Lene Steelman, Kiddie Academy’s Controller and VP of Accounting, who helps franchisees avoid financial mistakes and build a business with a rewarding future.
If you’re thinking of becoming a franchise owner, review our list of the three biggest – but avoidable – financial mistakes franchise owners make.
Mistake #1: Not monitoring your credit.
“Many people are unaware that their credit report may include inaccurate information that is impacting their credit score. These surprises can significantly delay the franchise process.”
Avoid it: “Obtain and review a copy of your credit report. You can find this on Freecreditreport.com. If anything appears incorrect, be sure to get it cleared up before it goes to a lender.”
Mistake #2: Spending your loan money before you get it.
“People go out looking to develop a franchise and they spend money for their business prior to having any numbers in front of the lender. Keep in mind that dollars you spend over your cash injection amount prior to approval from a lender is not reimbursable.”
Avoid it: “Track your spending based upon 20% to 30% of your project as cash injection. Make sure that you don’t go over the cash injection amount until the lender has issued an approval letter.”
Mistake #3: Not doing your homework.
“The most important thing is to sit down and look at your financial situation. Franchisees not only must meet that initial investment cost, but also must have an additional 10% or so on hand for their post transaction liquidity. ”
Avoid it: “Review your liquid assets, net worth and retirement accounts and do your homework to figure out what you have available to you. It’s best to determine this sooner rather than later so you aren’t emptying all of the mason jars to make the deal happen, and then leaving yourself with insufficient funds to live on after the loan closing.”
Most franchise owners don’t start out as financial experts, and that’s OK. The expert advice, ongoing support, and professional connections that franchisors offer mean that you won’t be left thinking, “I wish somebody had told me sooner.”
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