Month: March 2017

Net Worth: Why do franchisors want to know it and how to calculate it?

Quite simply, your net worth is your assets minus your liabilities. This is probably the most the most important factor for obtaining a franchise. So, why is this so important to a franchisor? The franchisor is putting their name on the line and they need to know whether you are the right person to move their brand forward. The relationship between you and the franchisor is one of mutual benefit. The more successful you are the more successful the franchisor. Your financial condition will become a factor but it is not the only factor.

The Franchise Disclosure Document (FDD) and other documents will tell you the net worth the franchisor requires. They expect you to have that money in hand before dealing with them. But rest assured that they will look at other factors, such as management experience, “people-skills”, and various additional relevant background. If you can show adequate access to capital, a franchisor will overlook your “less-than-adequate” net worth. Other capital may include an SBA-approved loan or money from family and friends.

A good franchisor will not make a decision based solely on your net worth. If they do, they can turn out to be an unreliable franchisor that is just looking to sell a franchise and not begin a mutually beneficial relationship. A good franchisor will make sure you are a good overall fit for their organization. The net worth is an easy starting point for the franchisor because they know, from experience, what it will take to start a new franchise on solid financial ground. The number one reason businesses fail is because they are undercapitalized.

How do I calculate my Net Worth?

Net Worth is the value of what you own minus what you owe. A positive net worth would mean the value of everything that you own is greater than the amount that you owe. A good thing. If your net worth is negative, then you owe more than the value of what you own. A bad thing.

Your first step is to gather and organize all your information regarding your assets (what you own) and liabilities (what you owe). This can be a big task if this is your first time. But, once you do this, it will be easier to keep the information organized.

Assets

Assets are everything you own. They can be broken down into a few difference categories:  tangible, equity, fixed-income, and cash/cash equivalents. For all your assets, list and assign a dollar value.

Tangible assets are items that have a physical form, such as; your home, vacation home, rental properties, furniture, cars, recreational equipment, art, and jewelry.

Equity Assets are your ownership interests in businesses, such as; stocks, variable annuities, limited partnerships, and retirement accounts.

Fixed-income assets are long-term investments that pay you interest on a fixed schedule, such as; US government bonds, municipal bonds, mutual funds.

Cash and cash equivalent assets are short-term accounts and investment that can be cashed in immediately, sometimes referred to as “liquid capital.” This typically includes: checking and savings account balances, money market funds, certificates of deposit, other cash on hand.

Once you have these items listed and a dollar amount associated with them, you will add up everything for your Total Assets.

Liabilities

A liability is any money that you owe to a person or business in exchange for an asset. For each liability, you need to write down the dollar value that is still owed. Liabilities include; home mortgage, other mortgages (vacation or rental properties), home equity line of credit, home equity loan, car loan, bank loan, student loan, personal credit line balances, credit card balances, personal loans, and any other money that you owe. Once you add up the dollar amount for each liability, you will have your Total Liabilities.

Apply the formula

The final step is to apply the simple formula:

Total Assets – Total Liabilities = Net Worth

Who said high school Algebra was a waste of time?

There are many tools on the Internet to help you calculate your net worth. Yahoo offers a simple calculator: Click Here

If you are considering the purchase of a franchise, knowing your net worth is a good start. Another good step is to Pre-Qualify for a loan in the same way you would pre-qualify for a home purchase. This lets the franchisor know that you are a serious prospect. In many cases, a franchisor receives hundreds of inquiries every month and you want to stand out. To see how much you qualify for, visit our pre-qualification portal: Pre-Qualify for you new franchise by clicking here

Owner-Operator vs. Semi-Absentee

Money

Owner-Operator vs. Semi-Absentee vs. Passive Ownership: What’s the Difference?

As husband and wife, we starting our first business nearly 17 years ago. Prior to our marriage, we both started businesses but with little success. Starting your own business is a lot of work. A business can take over your life, especially if it the first time you start a business. The upside is that it can be the most rewarding decision you make.

Our first business together was a franchised business. We were starting with a proven business model and a corporate team (and franchise community) to help make us successful. It was an owner-operator model and not suited for a semi-absentee model. So, what is the difference?

In franchising, you will hear the terms owner-operator, semi-absentee, passive ownership. Each type of ownership requires considerable time and effort on your part. A semi-absentee model or passive ownership may be a right fit for someone who still needs to maintain a job or has other obligations while building their business.

Let’s break down the differences between each model.

Owner-Operator:

This option allows the business owner to be completely hands-on. You will be responsible for the day-to-day operations of your business. This does not mean that will be doing ALL the work. You may oversee 2 people or 20 people depending on the model.

This requires you to be fully committed to the business.  You can’t hold down another job and if you have other obligations, they should be more hands off for you.

In our journey, we started as owner-operator and grew the business to the point where we were able to be semi-absentee owners.

Semi-Absentee:

As a semi-absentee owner, you needn’t worry so much about hiring and training the right employees for your business because you would hire a manager. They will handle many of the day-to-day operations. A semi-absentee owner must be comfortable enough to give up some control. It can give them the opportunity to concentrate on the part of the business they do well, and someone else takes over the areas they are weak. For example, if you don’t like networking but love back-office operations, you can hire a marketing manager that will attend the networking functions.

Keep in mind that you can’t just open the doors, put your feet on the desk and wait for the revenue to roll in. There is work that needs to be done and at the end of the day, it is YOUR business. You are ultimately responsible for its success. As a leader, you will need to be able to make key decisions and provide clear direction for your team.

Fully Passive Ownership

Fully passive ownership is the stage of your business where you are no longer involved in the day-to-day operations. The business has developed systems and processes that allow your employees to run the business. You now have time to concentrate on the strategic side of your business or possibly explore other business opportunities.

In franchising, becoming a fully passive owner is a process that you grow into not something you do from day one. It is rare for a franchise system to allow fully passive ownership for a new franchisee. The benefit of a franchise is that it can get you a fully passive model sooner than a non-franchise business.

Which is best for me?

Each ownership models offer distinct benefits. The right fit when choosing a franchise is important. Many franchise opportunities are best suited to an owner-operated model but many opportunities work very well as semi-absentee. In most case, you can start as an owner-operator and grow into a semi-absentee owner, just like we did with our first business.

If you like hands-on management and enjoy day-to-day operations, then an owner-operator is the model that best suits you. You will be knee-deep in the business and you will see the rewards of your hard work.

Being a semi-absent owner allows you more flexibility and you can start a business while working another job. On the flip side, it does have its own set of challenges. You must be comfortable with your business being managed by others. There is extra pressure on you to hire and retain top talent to make the business successful.

The choice is yours and each model offers benefits depending on your personality, time constraints and your desire to run the daily operation. No matter which model you choose, franchising offers you the best chance of success.