When shopping for franchising opportunities, you may have heard the term “net worth” and wondered about it. Franchisors look for potential franchisees with a certain net worth, or value of your assets. It’s important to not only understand what this means, but also what franchisors are looking for.
Why Franchisors Care About Net Worth
Your net worth tells franchisors how well you manage money and how good you will be in terms of helping the franchisor build out its brand. If you have a high net worth, this tells a franchisor that you can be a bit picky about the opportunities you pursue, and they’ll want you all the more.
A decent net worth can indicate that you are smart with your money, which, hopefully indicates that you will continue that characteristic as a franchise owner. Franchisors naturally want franchisees who will manage the business’ finances smartly so that they will grow over time.
What Net Worth Do You Need?
This will depend on the franchisor as well as the investment required to buy a franchise. It might be between $100,000 to $300,000, or substantially less for a smaller-investment business.
The higher the net worth requirement, the more picky you can expect franchisors to be. A low net worth requirement may set the bar low for potential franchisees, which could mean you’d be entering a flooded marketplace.
Realize that net worth isn’t the only factor franchisors look at when assessing you as a potential franchisee. They will also look at business and industry experience, how much money you can put down (outside of financing) to buy the business, and whether you have past experience in running a franchise.
How to Determine Net Worth
It’s easier than it sounds. Start with your assets. This could be cash or other financial assets, personal property, investments, and retirement savings. Then list your liabilities, like credit card debt, auto and home loans, and any other debts you have.
Subtract the liabilities from your assets. The number you get is your net worth.
If Your Net Worth Isn’t Great
If you don’t qualify for the franchise you want to buy, work on improving your net worth. Pay down loans and credit cards to reduce your liabilities. If it’s in the cards to keep working a while longer before you buy a franchise, really focus on socking away savings to boost those assets. Then when your numbers look better, start shopping for your ideal franchise opportunity again.
Susan Guillory is the President of Egg Marketing & Communications, a marketing firm specializing in content writing and social media management. She’s written three business books, including How to Get More Customers With Press Releases, and frequently blogs about small business and marketing on sites including Forbes, AllBusiness, The Marketing Eggspert Blog, and Tweak Your Biz. Follow her on Twitter @eggmarketing.