(FS5) Projecting Your Franchise Income and Cash Flow
Many franchisors have programs to make number crunching easier on you. This can include point of sale programs for the front of the house and accounting and payroll programs for the back of the house. While these can be very helpful, your investors and lenders will still want to see the projected income and cash flow for the business. Even though these are not actual figures, it shows them that you have thought through the business plan and strategy in a realistic manner.
To start with, you should add up all the costs for you to be able to stay in business for the first 60 months. You will want to create this statement for each month for the first two years and then quarterly for the third through fifth years of the projections. 
You can find the information you need from other franchisees already in the franchise system. You can find out about actual costs and what to expect. When looking this information over make sure you review it carefully and get information from multiple sources. It is helpful with this to ask some of the franchisees what accountant they use. Then visit this accountant to get a better understanding of what you are looking at. This is also a good way to help predict the cash flow you need for your operations.
You will be able to see the projected initial investment within the FDD. You may also find a profit and loss disclosure document here as well as the earnings of the operating locations. This can help you to have better predictions. If the franchisor does not provide this to you, then you will want to look at the information provided by the competition.
Getting the Funding You Need
Financing your new franchise does not have to be difficult. There are many places where you can find the funding you are looking for. Family is a great place to start looking for the funding you need. Another great option is to go with investors and lenders for your business. If you need more ideas on how to come up with the capital you need for your business, then you should speak with your franchisor.
Some of the ways that people typically gather the resources necessary for the franchise purchase include:
- Savings Accounts
- Collateral on Home
- Financing from Banks
- Loans from Family or Friends
- Money from Outside Investors
How to Stay Out of Debt When Opening a Franchise
No one wants to go into debt, though most people deal with this on a regular basis. Keep in mind that going into debt for your business is something you need to think carefully about. Do not just put your retirement funds on the line to get the money you need for your home. In the same way, do not be quick to refinance your home as a way to get some extra cash, as this will maximize your debt. Here are a few tips you should keep in mind with this:
- Borrow from money you have set aside for a second home or future project.
- Talk with family and friends who you trust and who trust you. Do not be surprised if they want an equity stake in your company. However, in many cases, having an investor can be less intrusive and will not risk independence or decision making control.
- You can have a partner who will bring money up front or even on a continual basis.
- Sell items and property that you no longer want or need such as a boat, second home, RV, or jewelry.
- Do not use your credit cards as a way to have cash on hand. The interest rate is too high and it can lead to financial difficulties.
- Never use money from your retirement funds, college funds, insurance policies or similar accounts that could jeopardize your future.