Can You Start a Franchise Without Any Savings?

Opening your own franchise can be a lucrative and rewarding venture that allows you to build wealth while benefiting from an established brand and a proven business model. If you’ve ever expressed interest in starting your own franchise, or already own your franchise, you most likely know that one of the biggest challenges that aspiring franchisees face is the initial investment required to start your business. While most franchisors require a significant amount of money to start, there’s a simple question that many of us ask: Is it possible to start a franchise without any savings?

The short answer to this question is, yes, but it’s really not ideal because it requires you to take on a lot more risk. Franchisors typically require a certain amount of investment to ensure that prospective franchisees are financially stable enough to start and maintain a business, and inevitably, turn a profit. Starting a franchise without savings or with limited capital could seriously hinder your ability to grow as a business.

From a franchisor’s perspective, they have invested time and money into developing their brand, and they want to ensure it’s a success. If you lack the required initial investment or have limited capital, they may deny your application. Franchise fees alone can range from tens of thousands to hundreds of thousands of dollars. And as a franchisee, you’ll be directly responsible for the majority of upfront costs, including equipment, staff, marketing, legal fees, paying vendors and construction.

Praful Mittal, the chief executive officer of WIN Home Inspection, says starting a franchise without savings is technically possible, but there are some very important aspects you need to understand first.

“It’s important to understand the expectations,” Mittal says. “You need to understand the cost structure, how long it takes to get your business up and running, and monthly costs.”

He also emphasized the importance of understanding that franchising is a “partnership between the franchisee and the franchisor,” and each party needs to be able to pull their own weight in order for the business to be successful.

“Entrepreneurs need to be brutally honest with themselves,” he said. “Don’t start a business if you can’t fend for yourself. You need to ask yourself how willing you are to roll up your sleeves and actually work hard to get the business up and running.”

Brandon Ezra, the CEO at Grand Welcome, also touched on the importance of having capital or savings before investing in a franchise concept.

“Even if you’re profiting, there are many companies, some very large companies, that have gone out of business because they simply didn’t have enough cash,” Ezra said.

However, even if you don’t have a ton of capital, or maybe lack savings, that doesn’t mean opening a franchise is entirely out of your reach. There are a number of different options available to help you get started. Both Ezra and Mittal suggest finding a business partner or taking out a loan with the Small Business Administration. Or, if you’re a budding entrepreneur looking for your first business opportunity, just start small.

“I would advise starting with a smaller territory that’s a lot less expensive and has less risk, and then slowly build it up over time,” Ezra said.

Another solution that may seem more rudimentary is to ask friends and family for loans. If that doesn’t pan out, many franchises, such as WIN Home Inspection, offer financing plans to help their franchisees pay off the initial investment over time. But, Mittal says, if you choose to apply for an SBA loan or bank loan, make sure you create a solid business plan.

“Creating a business plan can be a very healthy, positive and constructive exercise for a business owner,” Mittal said. “If you approach any bank without a robust business plan, then your chances of getting a loan could be adversely impacted.”

Conclusion

While starting a franchise without savings really isn’t the ideal path to take, it’s not entirely impossible. There are solutions should you be itching to own your own business, but it’s recommended that you take some time and understand what sort of agreement you’re getting into. Always read the franchise disclosure document and prepare to dedicate time, money and hard work to building a successful business.