3 Things An FDD Doesn’t Tell You
Starting, building, and owning a franchise isn’t all rainbows and sunshine.
Don’t get me wrong, it can be amazing.
But you need to be prepared for a journey with highs and lows.
You can experience natural highs that are hard to describe.
You’ll also have some moments when you question everything.
The key to balancing out the highs and lows is being prepared – both mentally and financially.
Here are three things to think about that a Franchise Disclosure Document won’t tell you.
Number 1:
The ‘Oh Shit’ Fund
Look, when starting a business shit’s going to happen.
A key hire who you think is the next Peyton Manning can turn out to be a Ryan Leaf.
Buildout will take longer than the contractor says.
Your new staff are going to make some mistakes.
And these things cost money.
The more dry powder of working capital you have, the better prepared you’ll be when you run into an ‘Oh Shit’ moment.
The FTC says franchisors need to include 90 days of working capital in their Item 7.
Plan for more.
Number 2:
Bump Up Advertising and Marketing
Revenue solves a lot of problems during the ramp phase.
More reps coming in faster will help you and your staff get dialed in.
If you focus on getting a boatload of revenue coming through the door early, you’ll have the opportunity to use it to optimize for profitability.
Revenue first. Profit later.
So look at advertising and marketing as an investment, not an expense.
And build a healthy budget for it in your planning.
Number 3:
Get Comfortable With Debt
Just like we use debt to invest in real estate, buy cars, and fund large home improvement projects, it’s wise to use debt to invest in businesses.
Preserving your liquidity can put you in a better position for those Oh Shit moments.
It can also help for expansion (especially if you’re going the multi-unit route).
The thing is, those juicy Item 19s don’t include your debt payments.
So be sure to account for them.
For instance, a friend of mine got in early with SkyZone (the trampoline park) about 10 years ago. His parks do very well. But, they were very expensive to build.
He took a calculated leap and part of what helped him was viewing his debt as an investment into a cash-flowing asset to create an escape route from the corporate world (that also allows him to play golf whenever he wants and be in control of his financial upside).
Listen to him tell his story and share insight into how approached his journey on this Franchise Masters podcast episode…
