Many people I speak with who want to start a franchise have the problem with understanding what steps they need to take to be able to leave the paycheck of a job to be able to start a business.
I understand their dilemma; they are dependent on the income of their job and can’t afford the disruption to their budget while they are waiting for their new business to be self-supporting and eventually start flowing cash. I have three simple steps that I recommend for them.
Step 1 – Get out of Debt.
To alleviate the issue of living on a smaller budget, I always suggest to candidates that they get out of debt. Clean up the credit cards, pay off car notes, take care of outstanding bills and stop charging. I feel by having no debt, you’ll be able to handle the initial inconsistencies of cash. Unfortunately, not everyone likes step one.
Step 2 – Fund an Emergency Account.
It’s a must to have enough cash set aside to cover at least seven and a half months of living expenses. Now that the debt is paid off, it will be easier to “sock away” money in a savings account. Why do I suggest 7.5 months? Because the industry suggest six months, and I feel that people have become numb to that benchmark. Plus, having an additional 25% in savings, never hurts.
Step 3 – Arrange Your Funding.
Buying a franchise requires an investment. Usually the costs break down into two buckets, initial cash investment and total investment. I suggest that people, once again, save up for the initial cash investment and possibly finance the remaining total investment. When working on financing, I suggest that they do not include their current income as a requirement to get financing. That income will disappear as soon as they leave their job and to budget for debt repayment on income that has vanished is unwise at best, and frankly, foolish.
As franchise consultants, we help people with this scenario all the time, feel free to contact me if you have any questions related to your circumstances.