If you have been checking out franchising opportunities to invest in, then you have probably come across the term “net worth” and wondered why it matters. Most franchisors want to partner with prospective franchisees who have a particular net worth or asset value. As a potential franchise owner, you need to know what net worth means and what franchisors are searching for.
Why does net worth matter to franchisors
Your net worth lets franchisors know how good you are at managing money and how well you will be able to help them grow their brands. A high net worth tells a franchisor that you carefully select opportunities to go for, and this will make them want you the more. If you have a decent new worth, it will show that you spend your money wisely, which may mean that you will maintain the characteristic when you own a franchise. Franchisors are looking for people who can manage the finances of the business smartly to ensure that they can grow with time.
How much net worth do you need?
The answer to this question will depend on the franchisor and the initial investment needed to purchase a franchise. It usually ranges from $100,000 to $300,000 but can be significantly lower for businesses that don’t require much capital to start.
The net worth requirement can indicate how selective the franchisor is likely to be. If the net worth required is low, the number of eligible franchisees will be higher, which might mean that you are venturing into an overcrowded marketplace.
However, it’s important to note that net worth is not the only thing that the franchisor considers when evaluating a prospective franchisee. They will also consider your business and industry experience, initial deposit to purchase the franchise (excluding financing), and whether you have previously operated a franchise before.
How to calculate your net worth
Determining your net worth is easy. Begin with your assets. These may include cash at hand or other financial assets, investments, personal property, and retirement savings. You then need to make a list of your liabilities, such as auto and house loans, credit card debts, school loan, or any other debts you have got. Deduct the liabilities from your assets. The remainder is your net worth.
What if your net worth is not that great?
If you are not eligible for the franchise you are interested in, try to improve your net worth. Clear your loans and credit cards to lower your liabilities. If you intend to continue working for some more time before buying a franchise, concentrate on saving to raise those assets. You can then begin to search for your dream franchise again once your numbers improve.
