“What’s the best franchise?”
It’s a question I get all the time. And I get it. With 3,000+ of franchises out there, it’s natural to want someone to just tell you which one is the “best.”
But here’s the truth:
The “best” franchise is different for everyone. The right franchise for me or for your neighbor down the street might be a terrible fit for you.
That’s because, as a franchisee, you’re not just buying a business – you’re investing in a vehicle to achieve your personal vision of success. And to achieve your vision, you need a vehicle that aligns with your goals, skills, and lifestyle.
So how do you do that?
It starts with brutal honesty about what you want… and what you don’t.
Step 1: Define Your Anti-Goals (and Goals)
Before you browse a single franchise website, get crystal clear on your objectives.
A great place to start is listing your anti-goals – your deal breakers.
For example:
“I’m not working weekends or missing my daughter’s recitals.”
“I won’t be chained to a retail counter all day.”
“I don’t want a team bigger than 10 people.”
List out your non-negotiables. Then, delve into your goals.
What does winning look like for you?
Is it more time with family? Building generational wealth? Something else?
Go beyond vague terms.
Put specific numbers to your dreams.
With your goals and anti-goals in hand…
Step 2: Consider Your Capital (and Get Creative)
You don’t need millions to get started in franchising.
In fact, 50% of franchises cost less than $350K per unit. And more expensive doesn’t always mean better. I’ve seen $100K franchises outperform $500K ones.
The key is to get an accurate picture of your funding options. Start by listing out your available capital:
- Cash savings
- Equity in your home or other real estate
- Retirement accounts (401(k)s, IRAs, etc.)
- Investments (stocks, mutual funds, etc.)
There are funding options for every budget:
1) Traditional Bank Loans
The most common funding source. You’ll generally need good credit, collateral, and a 20-30% down payment.
2) SBA Loans
These loans often have lower rates, longer terms, and lower down payments than traditional bank loans. They’re designed to help small businesses get off the ground.
3) 401(k) Rollovers (ROBS)
Allows you to invest your retirement funds into your franchise. All without triggering early withdrawal penalties or taxes. Note: you must use an experienced ROBS provider.
4) Home Equity Loans/Lines of Credit
Lets you borrow against the equity in your home, often at lower rates than unsecured loans. Great for covering working capital needs.
5) Franchisor Financing
Some franchisors offer in-house financing for all or part of the startup costs. Streamlines the process but may come with higher rates.
6) Creative Combinations
Many franchisees use a mix of funding sources to lower their risk and out-of-pocket costs. For example, you might use a ROBS to cover the franchise fee, and an SBA loan for equipment.
(if there’s a will, there’s a way!)
Quick advice here:
ALWAYS budget more than the franchisor tells you. You’ll sleep better (and make more sound business decisions) knowing you have a cushion.
Step 3: Build a Financial Model
A financial model helps you make better money decisions.
You need to know 4 things before you start:
- Break-even sales volume
- The margins at different levels
- Payroll budgets
- How debt affects your cash flow
Don’t worry, you don’t need an accounting degree to do this. A simple spreadsheet will do.
To build your model, gather:
1. Startup costs (franchise fee, equipment, build-out, inventory, etc.)
2. Ramp-up revenue projections (often provided by the franchisor)
3. Ongoing expenses (rent, labor, supplies, utilities, marketing, etc.)
4. Loan payments (if using financing)
Plug the numbers into a spreadsheet to calculate your projected revenue, expenses and cash flow for the first 1-3 years.
(Want help? I’m building out an entire course on financial modeling 101. Anyone who works with my team to find a franchise will get access.)
Don’t forget to factor in your personal living expenses during the ramp-up period. It may take months before your franchise to be cash flow positive. Be realistic about how long your savings can sustain you.
If the numbers look grim, move on to a different opportunity.
But if you see a realistic path to profitability and healthy cash flow, you may have found a winner.
What if I want help finding a franchise?
My team can help you find the best franchise based on your goals, budget, skills, & location.
We present you options, provide checklists, resources, and referrals to franchise lenders, attorneys & CPAs.
This consulting costs you absolutely nothing.
Click here to book a discovery call
Cheers!
Brian Beers
