Saving to finance your franchise

Mixed in with excitement at the idea of becoming a business owner are always some financial concerns. Saving to finance your franchise will help reduce those concerns.

Questions that people ask are ones like:

How much will it cost? “How can I afford it? How will I pay the mortgage and the bills? How much can I make? How long before I make money?

These are natural questions, and they are important. That's because you'll need to invest some of your own money to get the business started and to provide working capital to fund its day-to-day operations. You will also need money to live on until the business makes enough to pay you a wage.

So, the very first step in starting a business is to build up your savings so you have the money to fund it. Having these savings will help you feel more confident as you approach starting a business, because you'll know you can pay the bills for a time, while things get off the ground.

Here are some practical steps to help you start saving to finance your franchise.

Reduce debts and increase savings

There are two parts here: less debt and more savings. Both are important!

Lower debt levels give you more flexibility to cope with the financial ups and downs of business. You'll also need savings to help you fund the initial start-up costs. Even if you get a loan to help your purchase your bank will still want to see some ‘skin in the game’. Savings will also give you money to live on while the business builds up to the point where you can take a wage from it.

Reduce expenses

Reducing your day-to-day expenses will allow you to save money, and live on less as your business starts up. This may lead to some tough choices for you and your family, but initial financial sacrifices are part of the price to pay for financial independence. Think about where you currently spend money and work out some areas you can make savings.

Be realistic about costs 

People who have got into business often say it cost more than they initially expected. So, when you're planning how much you'll need to fund your business, it's a good idea to allow for extra costs and a slower start-up than your initial optimistic estimates. Ask your franchisor and other franchisees for information to help you work out a realistic range of costs.

It's also helpful to ask an accountant to prepare financial projections and a cash flow forecast. Ideally you want to find one who is experienced in franchising and is realistic as well as supportive of your desire to start a business.

There are no guarantees in business but these tips will help you lay strong financial foundations and increase your chances of achieving your goals.

A version of this article first appeared in Franchise Buyer Magazine. It was originally posted on www.smartfranchise.com.au and was written by Kate Groom, who is a co-founder of the Franchise Accountants Network.