This is a vital question and one often overlooked by would-be franchisees who could be said to have their heads high in the "figurative" clouds. Let's take a more detailed look as this question. First, figure out your net worth. Simply evaluate all your assets; the equity in your home (if any); cash on hand, in bank accounts or in other investments; the cash value (if any) of your life insurance and/or retirement accounts and any other assets you may have such as your vehicle(s) or collections or similar valuable items. Then, add up your liabilities. These would consist of any balances on credit accounts, your home mortgage and any debts you may otherwise be responsible for. Subtract the second from the first and the result will be your net worth. You will, of course, have to also think about how easily your assets could be converted into cash (if they are not already in that form). You could take out a second mortgage (or increase the first easily) and convert your home asset into cash. Selling that treasured collection of original ABBA LP's, however, or borrowing against it, may not produce quite the results you were hoping for. Once you have determined your net worth you will know how much money you could raise should it become necessary. Rest assured that the franchise you have chosen will require a certain net worth before you can be considered as a franchisee. In essence, this should answer the question posed above.

The reality is that a vast majority of people won't have anywhere near the amount of money that might be called for to become a successful franchisee. The old cliche "it takes money to make money" is certainly true! All is not lost, however, for there are plenty of sources for assistance in this area. To begin with, franchisors themselves sometimes provide financial assistance to their franchisees. From their viewpoint they profit doubly in that they get the interest profits from their investment and also gain in credibility from the success of your franchise. For example if Axolotl Donuts Ltd. were to loan you, an Axolotl franchisee, $100,000 at 5% a year to open your Axolotl donut stand they would make $5,000 a year...PLUS their percentage on your sales...PLUS the credibility they would gain if you become the most-patronized donut stand in Smallville, East Dakota!

Now, having calculated the amount of money you have (or don't have, in some cases), the next thing you will need to calculate is the amount of money you will be spending to open your doors. The first item will be the payment for the franchise. This is the amount you pay the franchisor for the use of the name and the services (such as advertising) that will be provided to you. In most cases this amount can be learned through some diligent "surfing" for most franchisors will list their franchise fee on their website. In addition there are many web sites (ours included) whose purpose is to promote franchisors and provide information to potential franchisees. There are franchisors with fees as low as $1,000 (more the exception than the rule) although most fees run into five figures.

Once you have paid the franchise fee there will also be the initial investment needed to set up your new business location. You will have to lease or purchase whatever sort of building will be appropriate for the operation, have this renovated or remodeled to suit your purposes and then acquire any necessary equipment (and inventory) needed for the operation. Assistance in the area of establishing your overall requirements is generally provided by the franchisor (who may also have specific requirements of his/her own) and financial assistance may also be available. Franchisors can usually provide a would-be franchisee with a close estimate of the start-up costs so that the latter will know how much money will be needed to begin.

One other thing must be considered! In spite of your hopes and dreams the odds are against your being greeted, the first morning you open your doors, with a line of anxious and eager customers extending three blocks up the street (well, maybe if you are selling $10 bills for $5.00). Most successful businesses take time to get that way and as a result your "books" may show more red ink than black for the first months of operation. This is especially true if the franchisor, as well, is new to the field (and even more so if the product or service is equally new!). In any case you must be in a financial (and emotional) position to weather these beginning losses. All too many cases can be documented whereby a "new to the business" individual scrimped and saved to rent a space, purchase the equipment and inventory and then locked the doors for the last time a couple of months later when their income didn't cover another month's rent or supplies. Had they been able to hang on a bit longer they might have been successful. They never considered, of course, the fact that they wouldn't be an instant hit. Many stories of great industrialists and financiers recount how close they came to failure in their beginning years. You can't assume that the first month's profit will pay the second month's bills. There may not be a profit the first month!

Now that you have the numbers, this becomes a simple grade-school arithmetic problem. Write down your assets, preferably either cash or items easily converted into cash. Then, write down your start-up costs including franchise fees. Finally, write down what will be needed as a "float"...that is, money used for business purposes (or available for that if need be) which you expect to recover from the operation, but not immediately. Add the second and third together and subtract that from the first. In almost all cases the result will be negative. You won't have as much money as you require. You must then start looking for lenders who will invest their money in your business in return for the interest they can collect from you. You may find them among family or friends but you'll most likely have to look elsewhere. Franchisors will often provide loans to franchisees and various financial institutions, ranging from your corner credit union to global financial firms, are constantly looking for franchisees in whom to invest. A search of the web, or a careful perusal of the financial pages of your morning paper, should turn up a number of possible sources. Like any loan you'll have to compare the terms offered before making your selection. Once you have made your choice, figure out how much you'll be paying. Will your expected income cover this? If so, go ahead and sign the papers! You're in business!