The very thought of owning your own business is a dream of most people. Most people are seeking ways to better control their own destiny and owning one’s own business is the path toward this.
However, creating a business from scratch, even with capital is a very risky and mostly unsuccessful endeavor.
The failure rate is high!
However, with a franchise, you are not starting from scratch. You are buying into a proven business model that already has a track record of success.
This does not mean that you are guaranteed success, but it does mean a lot of the factors that are against a start-up have been removed. This is why you need to do your research on the best franchise opportunity for you. Here are some resources.
Franchise Matching Services
If you need more guidance, including finding the right franchise that best fits you and your lifestyle you should consider at least looking into these companies. This could be a little tricky because these services have to get paid as well.
Some will charge a commission. If it is a good matching service, then they will get paid upon performance by the franchisor.
This means that you as the franchisee will not incur a cost. Franchisors are looking for ways to match people that can be successful with their franchise model. That is how they get paid.
One such company that is packed with information that will help you find the right franchising business for you is Franchise Recruiters.Their mantra is that they connect people to franchises.
Financing your Franchise
There are several ways to get the capital needed to finance a franchising business. You can use your retirement plan or you can apply for a Small Business Administration Loan.
Retirement Plans
For those who do not know this, it is your 401(k), 403(b) plans, including any Individual Retirement Accounts. These plans have specific rules on contribution limits, withdrawal, and some investment rules.
However, creating a self-directed IRA, with an approved custodian allows you to invest in your own business. The Employee Retirement Security Act of 1974 (ERISA) made this possible.
All retirement plans have approved custodians, such as a bank, credit union or brokerage firm. Only a few allow for a self-directed IRA for the purpose of investing in your own franchise. Once you create your business entity, such as a C=Corporation or a Limited Liability Company, you can use your retirement dollars to invest in your own company.
Basically, you will be investing in shares of your own company. It is possible to also simply be an investor in the company and get returns back from your franchise into your retirement account.
However, for our purposes, we will tell you to get expert advice. Start with Publication 590 at https://www.irs.gov.
All retirement accounts still have to have an approved custodian, such as a bank, brokerage firm or into a firm that offers self-directed IRA’s. To learn more about this you could contact Equity Trust Corporation. They have many options to help you figure this out.
Small Business Administration
Almost every business minded person has heard of the SBA or Small Business Administration loan. This is geared specifically to help small businesses secure the capital that they need to start or run their business. And this includes franchising business.
Most business loans offered through a bank will require great credit and collateral. Even if you have had a long-standing good relationship with the bank, they will still need to see your cash reserves and the collateral available.
With an SBA loan to franchisees, this is known as the 7a loan.
The Small Business Administration does not actually make the loan but acts as a back-up against the loan to the Federal Government in the case of default. This makes the loan less risky to the bank.
There are rules that need to be met. Please start here by going to the Small Business Administration. In addition to that, you can reference the following article by the Wall Street Journal entitled How to finance a franchise purchase.
I trust that you enjoyed this article. Pass it along to your friends and family who may be considering a franchising business.
