When you're considering buying a franchise, one of the biggest questions you'll face is: Can this replace my current income? It's a valid concern for anyone looking to leave a 9-5 or add an additional revenue stream. The good news? Yes, it can be done! But, like anything in life, the details matter.
Let's walk through the process of replacing your income with a franchise, sharing real-world experiences from franchise owners Tyler and Ryan. We’ll also explore the practical steps you can take to ensure your venture succeeds, while keeping your financial security intact.
Before diving into the nitty-gritty of replacing your income, it's essential to understand the different types of franchise buyers out there:
If you fall into the third category – those who need their franchise to replace their current income – read on. This blog is specifically geared to help you.
There are over 800,000 franchises operating in the U.S. and many people make a living off them. However, how quickly a franchise can replace your income will depend on a few factors, including the business model, cash flow timeline and your personal financial position. Let’s break it down.
Understand your cash flow timeline
Know your financial position
The first thing you need to know is how much cash you have on hand for unexpected costs or initial startup expenses. This will help you understand how long you can float yourself before the franchise starts generating income.
“I had my pot of gold set aside, thank God, and then we started cash flow pretty quickly," Tyler said. "But if I didn’t work that thing backward, I would have been in trouble for sure.”
Tyler admits that he didn’t go through the process the right way. He had to rely on cash reserves from a previous business while waiting for his franchise to take off. The lesson? Make sure you know how much runway you have before your franchise starts making money.
Whether you or your spouse will continue working, it's important to know what your reliable after-tax income looks like. This could be your W2 income from your job, rental income, or loans due to you. Here’s what to consider:
Ryan, shared his story of maintaining his W2 income while opening his first franchise.
“My W2 income could cover a lot of that. I had plenty in my pot of gold, plus my income, to cover those expenses while I waited for the franchise to cash flow.”
By understanding his reliable income streams, Ryan was able to cushion himself financially until his franchise became profitable.
Now, you need to compare your income to your expenses. We break these down into four categories:
With your cash position, income and expenses accounted for, you can now determine if you’re financially prepared to replace your income with a franchise.
Tyler shares his experience of transitioning from the restaurant industry to opening five fitness franchise locations. He didn’t use an advisor, which made the process messier than it needed to be.
“I bought five territories … then I had to sell the current business while building the new one. I moved across the country … I didn’t have a lease for the first year. But thank God I had my pot of gold set aside.”
Tyler acknowledges that if he hadn’t prepared financially, his venture would have been far more stressful. Ultimately, his careful cash management paid off, and his franchise quickly started cash flowing.
Ryan took a different route. He initially intended to be an owner-operator but quickly pivoted to a semi-absentee model when his previous employer asked him to come back as a partner.
“I was driving out there every day, doing pre-sales, but then I got the opportunity to partner in my previous job. I quickly hired a manager and shifted into a semi-absentee role.”
By hiring a manager and keeping his W2 income, Ryan was able to weather the financial storms and grow his franchise to four units.
Yes, it’s entirely possible to replace your income with a franchise. However, success lies in understanding your cash flow timeline, knowing your financial position and having a solid plan in place. Work with an experienced franchise advisor to ensure you select the right franchise for your financial goals and lifestyle.
At Sidekick, our team is here to guide you through the process and help you make informed decisions about your franchise journey. If you're ready to take the first step, schedule a 10-minute call with one of our advisors, this could be the start of a life-changing opportunity!