Can You Afford to Buy a Franchise?

Thinking about buying a franchise? If so, you’re probably asking yourself, “Can I actually afford this?”

That’s a smart and essential question to ask early on in your franchising journey. Whether you’re chasing freedom from the 9-to-5 or looking to build something scalable for your future, one of the first and most crucial steps is making sure you’re financially ready to take the leap.

The good news? You don’t need to be a millionaire to buy a franchise. But you do need to be financially informed and strategic.

We asked Mike Silverman, senior franchise advisor at Franchise Sidekick, to unpack what really goes into figuring out if you can afford a franchise – and how to do it the smart way.

What’s the typical investment range for a first-time franchisee?

Mike: “In franchising, the investment range is listed in the Franchise Disclosure Document under Item 7. This includes all costs for getting up and running for one location, plus three months of working capital. For businesses that have a brick-and-mortar location, this includes things like build out, inventory, shelving, training, rent, security deposit, signage, etc., plus three months' worth of rent, utilities, payroll and reasonable monthly expenses.

For a brick-and-mortar business, Item 7 is usually between $350,000 and $3 million, while an Item 7 for franchises without a brick-and-mortar usually ranges between $100,000 and $300,000."

To learn more about Item 7 and what’s included, you can visit this resource from Franchise.Law.

Are there standard financial benchmarks I should meet?

Mike: "About 99% of franchisors will qualify their franchisees on a net worth and liquidity amount. They want to make sure you have enough cushion when starting a business that you can give it enough time to grow before needing to take money out of the business to live off of."

You want to focus on two main factors:

Net worth: Typically between $250,000 and over $1 million, depending on the franchise
Liquid capital (cash or cash equivalents): Usually between $50,000 and $200,000

Check out this net worth calculator to estimate your numbers.

How do most new franchisees actually finance their franchise?

Mike: “We see Small Business Administration loans as the most common funding option when interest rates are lower. When interest rates are higher, we see more people using Roll Overs for Business Startups (401k rollovers) or home equity lines of credit."

Here’s a list of the most common types of loans and resources to learn more.

SBA loans
ROBS
HELOC
Personal loans or partnerships
Franchisor incentives (rare, but available occasionally)

How much working capital should I set aside?

Mike: "In the FDD under Item 7, it’ll usually include the amount that the business would need for three months. However, if you plan on needing to take money out of the business from day one or hire and pay a manager from day one, I would increase the amount of capital to include that additional payroll."

Pro tip: If you’ll need to draw a salary from the business in the early months, budget at least six to 12 months of living expenses separately from your startup capital.

What are the financial red flags to avoid?

Mike: "One red flag is having to spend every last dime to open the business and not having enough reserves to sustain a down month. If the Item 7 is $175,000 to $225,000, and you only have or qualify for $225,000, I don’t believe you’re ready to buy that business and would find a way to save or raise more.

Being afraid of debt and spending all cash is another one. That $25,000 reserve is covering your expenses, and any delays in the business add a ton of risk. If you used debt responsibly, you would put 20% down and finance the rest. That way, you have $245,000 left in your account for living expenses, and if you need additional funds for unexpected delays and bumps in the business. You have bank money as your primary source, but reserves to dig into if needed from personal money.

In reverse, if you spent all your cash first and only had $25,000 left, you can’t go to a bank at that point and qualify for additional funds. The interest you’re paying is to rent that money as long as you need it. If the business takes off and is steady, then you can pay back the loan faster and save a ton in interest. You’ll also want to make sure to figure out what that loan payment looks like and add it to your proforma (projected profits and losses) going in.”

How do I know if a franchise is truly affordable for me?

Mike: "Build a proforma based on the information in Item 7 (start of costs), Item 6 (on-going costs) and Item 19 (financial returns and metrics) in the FDD. Then the most important step is to validate with existing franchisees to spot check your numbers.

Franchisors, advisors and anyone else associated with the sale of a franchise should not be answering or adjusting your proforma. Franchisees are the ones who run their business every day and can give you accurate feedback based on their numbers.

Ask them to review your proforma and see what you’re missing. Ask multiple franchisees to get the full perspective. Some might be the owner operator, some paying a manager, some in their first year, some in their 10th year, some with one location, some with five locations. Ask all these people and apply your learnings to your proforma.

You could also bring in a CPA to look at your numbers. They won’t particularly know anything about the expenses of that business, but they should know standard expense categories and give you a good framework of what to expect.”

Here are the initial steps to starting your proforma:

Item 7: Start-up costs
Item 6: Ongoing royalties, fees and advertising
Item 19: Financial performance representations
Talk to franchisees: Validate assumptions and fill in the gaps
Consult a CPA: Especially if you’re not confident building a P&L

Are there any tools or calculators I can use?

Mike: "We do have budgeting tools you can use to assess what your expenses are and where to find the expenses of the business. However, advisors are legally bound not to give specific feedback or help clients build out projections."

Franchise Sidekick’s internal tools can help you:

Map your personal monthly budget
Understand required liquidity and reserves
Create a first-draft financial readiness checklist

Do you ever advise people not to buy a franchise?

Mike: "All the time. The number one reason businesses fail is that they don’t have a long enough runway to give the business time to grow before having to take money out. If you need to raise your income and pull money out of the business day one, either you need to add money into the loan you’re taking out, or you shouldn’t invest.”

Red flags that signal you might not be ready:

Using your last dollar to invest
Needing income from day one
No cash cushion for emergencies
Unable to finance or unwilling to use reasonable debt

What kinds of franchises have lower upfront costs but solid ROI?

Mike: “Businesses without a brick-and-mortar are always less expensive to get started. These types of businesses include home services, youth enrichment or business services.”

Low-investment franchise categories to explore:

Home services (cleaning, landscaping, handyman)
Mobile businesses (food trucks, auto detailing)
Children’s programs (sports, tutoring, enrichment)
B2B services (consulting, staffing, logistics)

“I’m afraid of making a costly mistake.”

You’re right to be cautious. Franchising is a major investment. It can open doors to freedom, autonomy and generational wealth — but only if done wisely.

That’s where Franchise Sidekick comes in.

At Sidekick, we help you avoid the guesswork and the risk of going it alone. We offer:

Simplicity, safety and guidance: We walk you through each step — from budgeting to validation — with zero pressure.
Freedom and income on your terms: You choose the right fit for your goals and lifestyle.
No pressure, all strategy: We’re advisors, not salespeople. We only win when you do.

Ready to see if you can afford a franchise?

Schedule a no-pressure discovery callw ith an advisor today. Let’s build your financial roadmap together — safely, confidently and with total clarity.