Calculating Net Worth
An important step in the process of buying a franchise is submitting an application that includes your Net Worth, among other financial qualifiers. This isn’t a number that many know off the top of their heads, but it is a vital piece of information necessary to buy a franchise. In this article we’ll walk you through the various numbers you’ll need in order to get a solid estimate of your Net Worth which will ultimately help determine the level of investment you are able to make in purchasing a franchise.
The Good News First
So, let’s start with gathering up your assets. These will include:
- Cash and near-cash instruments like your checking accounts, savings accounts, money market accounts, and CDs.
- Stocks and bonds: T-bills, bonds, mutual funds, index funds, stocks, stock options
- Investment Real Estate
- Retirement accounts: 401k, 403b, IRAs (Roth and Traditional), and pensions
- Personal items such as: Any business currently owned (a fair market appraisal), residential real estate, vehicles (work and recreational), jewelry, art, coins, weapons, etc.
Calculate the total of all the above-listed items.
- Debt: include your personal consumer debt as well as any student loan debt
- Loans: these could be loans for vehicles or against insurance or investment accounts
- Home loans: this should include any mortgages as well as equity lines of credit
- Taxes: any taxes due, whether on income, investments or against retirement vehicles (note: having back due taxes is a red flag for many franchise companies)
Once you’ve got this number, subtract it from your assets and you have your Net Worth.
Different franchise companies have different requirements regarding Net Worth so while you may have enough worth to qualify for one franchise, it may be not enough for others. Each franchise concept generally lists its financial requirements publicly and can be easily found.
Keep in mind that financial requirements are simply that — a requirement — but it is not the only must-have in investing in a franchise system. Create your list of “must-haves” in a business that you invest in and compare that with the list of franchise companies whose financial criteria you meet. From there, you should have enough information to start fully vetting the opportunities in front of you.