If you are studying franchises and looking for a potential business to invest in, you have probably noticed a “net worth” requirement mentioned in many franchise requirements. This is a very common financial statistic, especially when it comes to the larger franchises, but many beginning entrepreneurs have to double-check what it means and how it affects their purchasing opportunities. Here is the story on net worth and how much attention you need to pay to it:
- Net Worth is very, very Important:
There is a reason that the net worth number is listed before the initial fees, minimal required investment, and other key figures. For the majority of franchises, a certain amount of net worth is required or you will not be eligible to purchase the franchise rights. This is the way that franchisors limit their client pool to only those business owners who are able to invest enough of their own money into the company to succeed. The net worth limit varies considerably based on the franchise. For the most famous brands, a net worth of several million dollars in common. For lesser franchises, you may only need a net worth of several hundred thousand dollars. For the smallest options, it may be as low as below $100,000.
- You need a Net Worth Statement:
When you apply to buy a franchise, you need to include a net worth statement that accurately shows your current financial situation and proves that your assets meet the requirements. Fortunately, this statement is very easy to create. You simply need to create a list of all your assets – including savings, investments, insurance policies, and accounts. Then create a list of all your liabilities, any type of debt or loan payment that you owe. Subtract the liabilities from your assets, and the leftover number is your net worth.
- Liquid Assets are more Important than General Assets:
On your net worth statement (or at least in your private computations) you should make sure to separate liquid assets from general assets. Liquid assets refer to the money you actually have in cash – or in a form that can be swiftly converted to cash. You will need this money for the initial fees and investments into the franchise, so it will be the most important number you deal with when considering a purchase.
- Calculators Exist to help you Calculate your Net Worth:
If you are not sure you are working out your net worth properly, look for a calculator online. A number of organizations, like Franchise.com, offer them and provide suggestions on the right categories. This is a great place to begin if you do not have much experience creating your own financial statements – or if you just want to make sure you don’t miss anything.
- You can Improve your Net Worth:
Net worth is a very broad figure, which makes it easier to improve than many other financial stats. The best way is to simply pay off your debts. This lowers your liabilities and increases your net worth at the same time. So tackle that credit card debt or those leftover loan amounts. The result will improve your chances at winning a franchise and also make it easier to be approved for bank loans further down the road.
- Net Worth will also help you Manage Future Debt:
Speaking of bank loans, your net worth does indeed determine how easily you can qualify for a business loan. Your cash and assets do not need to pay for everything, but they do need to be in good shape for you to qualify for a good loan. Computing net worth shows your general status as a borrower, and is often an excellent alternative to your credit score, especially when business loans are concerned.
Lauren Thomas is a professional blogger that provides information on getting started in investing and buying a franchise. She writes for BeTheBoss, where you can find the top franchise opportunities in Canada.