Franchising is not a get-rich-quick scheme. It can be an excellent wealth-building tool or retirement strategy, but you should not expect those goals to materialize immediately. Successful franchising requires hard work, the right mindset, and time. You won’t be able to pay yourself an income while you’re launching your franchise. Instead, you’ll need to plan on paying your bills through some other means during that early stage.
When Can You Pay Yourself?
Typically, you should plan on waiting until your franchise is profitable (or close to it) before you start paying yourself. The timeframe for this waiting period will vary, depending on your franchise’s business system and how you approach growth and expansion. A single-unit owner, for instance, can usually start paying themselves as soon as (or even before) their franchise becomes profitable. An area developer, however, may need to open several locations and get them to profitability before drawing income from the business.
Information in the Franchise Disclosure Document should give you an idea of how long your waiting period will be. Once you have that information, you can make a plan for how you’ll pay your bills while you’re launching your franchise. Here are my recommendations for the top three options to consider.
Savings or Investments
If you have sufficient savings or investments, you can plan to use that money as your financial cushion during the launch period. Note that this should be money above and beyond what you need for your franchise startup costs. These funds might come from cash savings or investments or from the sale of an investment asset, such as a rental property or second home. Depending on your age, you may also be able to start withdrawing funds from your retirement accounts. I only recommend this last option, however, if you can make the withdrawals without penalty.
If you live on savings or investments while launching your franchise, you can focus on the business full-time. This may enable you to reach profitability or other goals faster. Keep in mind, however, that living off savings can be a risky proposition. I believe franchising is safer than traditional entrepreneurship, but there are no guarantees of success. You may want to hold back some of your savings, in case of personal emergency or business challenges.
Side or Full-Time Hustle
Many new franchisees pay their bills by working a side hustle or even a full-time job while launching their business. This option can be exhausting, but it provides greater long-term financial security than living off savings. It can also be a smart choice if your day job provides health insurance or other crucial benefits for your family. Keep in mind that executive owners may have an easier time juggling franchising with a side hustle. Owner-operators usually need to focus full-time on the franchise and may not have enough spare time to earn meaningful income.
Also, tread carefully if you take this path. Don’t take on so many responsibilities that you can’t execute any of them well. Make sure your franchise obligations won’t put you in bad standing with your employer, and consider hiring a franchise manager to help you. Above all, always act with integrity, whether dealing with the franchisor, your employer, or franchise employees.
Spouse’s Income
If you’re married, you may be able to live off your spouse’s income while launching your franchise. Even if your spouse’s income isn’t sufficient to pay all your bills, it can reduce your reliance on savings or allow you to downsize to part-time employment. On the flip side, this option will likely mean significant adjustments for your family. You’ll need to reduce your household spending. And if your spouse has been a homemaker, you may need to assume more responsibility for housework and errands.
As you might expect, this option will work best if you communicate clearly with your family. Make the decision together with your spouse, and involve any children in an age-appropriate way. For young children, explain changes simply and positively. You might say, “We are not going to take a vacation this summer, but it’s because Daddy is starting a business that will let him take you to the park more often.” For older children, you can explain franchising’s longer-term benefits for your family. You can also include them in budget decisions and ask them to help with household responsibilities such as cooking or grocery-shopping.
At this point, you may be thinking, “I’ve got my financial cushion in place, and I’m ready to take the plunge!” Or you may be wondering how to tell if you’re financially ready for franchising. Either way, I can help. Schedule a call with me today for a free, 15-minute consultation!
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