Franchise Buying Guide

Financial Analysis - Questions to Ask Yourself

As you are learning, there are many factors to consider when evaluating whether buying a franchise is a wise choice for you. At this point, you have analyzed yourself and have determined whether your personal style is well suited to franchising. Just as it is necessary to analyze your personal style, it is necessary to look at your financial abilities. The questions below are meant to be a starting point for you. Answer the questions below, then follow the instructions at the end for conducting further analysis.

• How much cash do you have and how much of it are you willing to invest?
• What are your liquid assets and what are they worth?
• How much money are you willing to invest to get a venture up and running?
• How much equity do you have in your home or other properties, and are you willing to use it to finance your business?
• Do you have enough money in savings to support you until your business begins to make money?
• How much money do you need in order to maintain or achieve the lifestyle you desire?
• Do you feel the need to have that much money immediately, or are you willing to build the business to the point where it provides the income you desire?
• Will you need additional sources of financing to launch this business? If so, where will it come from (family, friends, financial institution)?
• Do you feel you have a thorough understanding of the length of time it takes to get a business to the point of profitability?
• Are you willing to prepare and submit financial and other types of reporting each month, even if you don't fully understand the reasons why it is needed?

Next, complete the Statement of Net Worth, shown below. After completing the Statement, answer the questions that follow.

Net Worth Calculator

Statement of Net Worth Follow up Questions to Answer

Assets

Cash on Hand & in Banks:

• Where is this money located?
• Can you get at it?
• Are you willing to use this or deplete it?
• Do you always carry this kind of balance?

Savings Funds/Certificates

• Is this a CD? If so, when is it maturing (60 days, a year, etc.)?
• Can you get access to it quickly?
• Are you willing to use this or deplete it?

Stocks, Bonds & Securities

• Are you willing to pledge them?
• Is this with a publicly traded company?
• Are these mutual funds?
• Is this with a privately held company (ie: a family company with no cash value)?
• Is this liquid and if so, how quickly can you get at them?
• How does your spouse feel about using these funds?

Retirement Plans, IRA's, 401K's

• Is it a 401K with a current employer (can only access 50% through a loan program)?
• Is this a rollover or rollover opportunity from a previous employer (can get at 100% of it)?
• Is this an IRA? If so, what type (self directed)?
• Is this in a defined plan you can get at?
• How does your spouse feel about using these funds?

Home Market Value

• How did you arrive at this #? If using home equity, will need "recent" appraisal (within last 6 months at least, maybe more recent than that)
• Did you base this on recent home sales on your street or in the neighborhood?
• How does your spouse feel about using these funds?

Other Real Estate (market value)

• What is this - Second home? Vacation home? Vacant land ?
• Match "Other Real Estate Debt" against it and discuss
• Can you get at this money and are you willing to?

Autos (market value)
Don't count this

Insurance Cash Value

• Term or whole life? Is there a cash value on it? Only cash value can be realized.
• Can/will you use this?

Money Due You
Don't count this

Personal Property

• What is this?
• Are you willing to sell it to get cash for your business?
• If not, take it off

Liabilities

Notes Payable

• Personal note due someone - what are the details surrounding this?
• Payment schedule?
• When paid off?

Charge Card Balances

• Payment schedule on these
• When paid off?
• Franchisors typically net this out against cash on hand

Home Mortgage

• Do you have a 2nd mortgage or a home equity line of credit against it?
• How does your spouse feel about equity lines of credit?
• Are you willing to use home equity?

Other Real Estate Debt

• Tie this back to Other Real Estate value

Other Financial Data

Cash available for Investment

• How did you arrive at this number?
• Where do you see this coming from?

You have now conducted a thorough analysis of your financial status. In doing so, you should have developed a good feel for the amount of money you are willing and able to invest in a franchise opportunity. If you feel comfortable with your analysis and are ready to take this investigation a step further, move on to the next steps illustrated in Franchise Buying Steps.

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