Financial Questions to Ask Yourself Before You Quit Your Day Job
If you’re like most of the franchise candidates who approach me, you’re ready to quit your day job–or you’re at least seriously considering it. For this post, your reasons are irrelevant. It doesn’t matter whether you’re trying to bail out of a dying industry, retire a little early, or set up a side hustle to build some wealth. The point is that you’re ready for a change.
We’re here to help make the transition as easy and efficient as possible. But for you to be successful, you need to do some preparation. Financial planning is part of that. Before you strike out on your own, we recommend you ask yourself these four questions.
What’s my horizon?
Before you can plan anything else, you need to know your desired financial horizon. If you want (or need) to replace your income ASAP, you should look for an arrangement with a short time to profitability. Single-unit, service-based, and owner-operator franchises usually fit this bill. If you can afford to wait, however–e.g., because you have savings to fall back on–you can consider options such as executive ownership and area development.
How am I going to pay my bills?
You shouldn’t plan on paying yourself a salary until your franchise business is profitable. If you’re planning to be a multi-unit executive franchisee, keep in mind that multi-unit businesses usually take longer than single-unit businesses to reach profitability. (You’ll make more money in the long run, however, which is why we recommend executive franchising.)
While you’re working toward profitability, you’ll still need to pay your bills. You can do this in several ways:
- Don’t quit your day job right away. Operate your franchise as a side hustle until you can replace your income.
- Cash in a large asset, such as an investment property, or live-off savings.
- If your spouse has a full-time job, reduce your lifestyle temporarily and live solely off your spouse’s income.
Do I want to pay more upfront, or down the road?
Your costs are only half the equation. You also need to consider franchise costs. These include:
- The franchise fee is an up-front, one-time payment that allows you to use the franchisor’s brand and business system
- Out-of-pocket costs, such as construction and equipment, involved in setting up and launching your business
- Ongoing royalties, marketing fees, and/or revenue share that you must pay the franchisor every month or quarter
How these expenses are distributed will vary. For instance, a lower licensing fee usually means a higher royalty rate. Or you can avoid direct startup costs by purchasing a turnkey franchise–but your franchise fee will be higher. You’ll need to decide how you want to handle these tradeoffs and choose your franchise type and funding arrangements accordingly.
How am I going to fund my franchise costs?
And speaking of funding arrangements: in addition to your up-front franchise costs, you’ll need some runway to cover operating expenses until your business breaks even. Though affordable franchise options do exist, multi-unit owners, especially, typically need a million dollars or more for this purpose. And that amount is in addition to any money needed to cover personal expenses during your ramp-up period.
If you have enough cash on hand to meet those needs, congratulations! Your funding is taken care of. But if you’re like most candidates we work with, you’ll need some help to fund your franchise dream. Fortunately, you’ve got plenty of good options. These include low-cost federal loans for small businesses, funding from your retirement account, and more.
If this all sounds a bit high-stakes, don’t worry. Lauri and I are here to walk you through the process. Before you quit your day job, we can help you make sure everything is lined up for your success. Our services are free to prospective franchisees! Book a 15-minute call with one of us today to learn more about how our process works and how we can help you achieve your dreams.
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