Franchise Requirements for Buying into a Franchise
No doubt you’ve heard the truism that buying a franchise is an ideal opportunity for an entrepreneur compared with becoming an independent business owner. Reason being—franchises are turnkey, and you need only to follow the model and operations for a quick ramp up into business. As a franchisee, you are trained and given continual support from a team of franchise experts who are committed to your success. It’s business ownership with a safety net, so to speak.
However, there is more to it than that. There are some conventional franchise requirements that are maintained for most brands but there are also specific requirements to start a franchise that are unique to certain companies. It’s important to understand the complete picture before diving in. Read on to discover how to best prepare for becoming a franchise owner.
Financial Requirements
Perhaps you’re concerned that although you have the enthusiasm to become a franchise owner, you may not have the necessary experience or funding required. To help you become more acclimated with the qualifications—let’s run through some key terms.
Becoming a franchise owner is a business investment, you will have to meet minimum franchise requirements concerning your financial background. For example:
- Credit Score- You will go through a credit check to ensure you have an acceptable credit score. Franchise experts are typically looking for a score of about 700 or greater. Keep in mind, it is probable that you must qualify for a business loan to get your franchise off the ground. It’s both the franchisor and the third-party financial institution that will be looking for a high credit score. According to Wells Fargo banking institution, the credit score will show that you pay your bills on time, your debt burden, the types of accounts you have and your recent credit activity.
- Net Worth- You will need to show your total net worth. A franchisor needs to know you can afford this venture and will not run out of money while trying to get your franchised unit up and running. The rule is typically, the more expensive the cost of the franchise—the higher the net worth requirement. You will need to look at specific brands to find out how much wealth you need to qualify but expect a price tag of at least $100,000 to qualify. Often prospective franchisees will partner with someone to meet this financial requirement. This number is important to a franchise brand because it shows them you can manage finances.
- Liquidity- You may see other terms for this like “liquid capital,” or “cash on hand,” but the bottom line is the franchisor wants to know if you have readily accessible funds to keep your franchise location afloat until income and profits start coming in. This is money you can touch and have access to in your bank account. There are expenses that you can cover like franchise fee, rent, payroll, etc. that are fully funded and don’t add to your debt burden. Again, this number varies among brands, so be on the look-out for your brands requirements.
- Financial Background- Your franchisor will also do an extensive check on your finances. This is your income-debt ratio. They will want to discover whether or not you’ve had any bankruptcies and any other investments you may have—ensuring that you do not have a conflict of interest or are in competition with their brand.
Other Important Information to Know
Look for the total investment that will be required to get your location operational. You will need to fully understand your on-going costs like royalties or marketing fees that are collected. These are brand specific. And have a clear understanding of the training and support you will receive.
The next step is that you will fill out the franchise application which is how the franchisor will screen eligibility. They are looking to find a good fit for their brand just as much as you are looking to align with them. You will likely meet with a franchise rep and receive the brand’s Federal Disclosure Document (FDD) that outlines the relationship between franchisor and franchisee, spells out financial responsibilities and the financial success of the brand. Based on regulation from the Federal Trade Commission, you must have the FDD in your hand 14 days prior to signing the agreement.
What About My Experience?
There are many franchise brands that do not require extensive experience in franchising or business. They may provide all the training you may need to operate your location successfully. Bear in mind, having some business, sales and marketing experience will be to your advantage. This is especially true if you will be managing a staff. Having some leadership background will only work to serve you better.
Own a SoBol
At SoBol, we are a leading acai bowl franchise with over 60 locations nationwide. With our franchise owners, we prefer that you have an understanding of franchising, retail, QSR, marketing and real-estate development. That will only serve you better along your ownership journey.
Financially, the SoBol franchise requirement includes $225,000-250,000 in liquid assets, which will cover your $30,000 franchise fee as well as working capital to complete your project. In addition, we require a net worth of $350,000.
We are very transparent with our numbers and expectations because we want this to be a great working relationship for both of us. Your total investment will come in at $240,800-$450,600—the variation is dependent on market conditions. Additionally, expect to pay 5% in net sales in royalties.
For us, financial requirements are just a part of the picture. We are also looking for people passionate about providing a healthy lifestyle for their community and dedication to operational excellence.
If you are ready to take the next step, let’s get started. Fill out our form and we’ll get the conversation started.
