Financial Preparedness
There are several financial components to look at when you are considering buying a franchise. Although the cost of franchises varies widely, a consensus of the information found on franchise Internet sites indicates that a potential franchise owner should have, at a minimum, the following financial strengths:

• A good credit score (generally 700+)
• A net worth of at least $100,000
• At least $25,000 - $30,000 readily available to invest

There is no guarantee that you can purchase or obtain a loan to purchase a franchise, but these three financial components will almost always be required. Some franchises require less investment capital and some require a great deal more. Some have more stringent financial requirements and some have less stringent requirements. You need to research the franchises in which you have an interest to find out what their specific financial requirements are.

Credit Score
Your credit score is a summary of your credit history. It includes:

• The number and types of credit accounts you have had
• Whether or not you’ve made your payments on time
• Any collection actions that have been taken against you
• How much outstanding debt you current have

According to Jeff Elgin, senior franchise company executive, in an article in Entrepreneur Magazine, "While a good credit history doesn’t mean you’ll get a loan, a bad one almost guarantees that you won’t." You can find out how to order your credit report on the sites listed. They also provide additional information that explains how your credit score is calculated, what is considered to be a good credit score, and some steps you can take to begin to improve your credit score.

www.ftc.gov/bcp/conline/pubs/credit/scoring.htm or www.myfico.com/CreditEducation/CreditScores.aspx?fire=5

Net Worth
Your net worth is defined as the total of your assets [what you own] minus your liabilities [what you owe]. It’s an indication of your financial strength. In addition to investment capital you already have, you may need to borrow additional funds to finance the purchase of a franchise. Lenders need to know that you have sufficient assets to guarantee repayment of any money you borrow. There are a number of sites that show you how to calculate your net worth. Some examples are:

www.myfico.com/CreditEducation/Calculators.aspx?fire=2
www.msnbc.msn.com/id/9745956
http://cgi.money.cnn.com/tools/networth/networth.html

Investment Capital
Sources on Internet franchise sites indicate that you may need to have anywhere from 15% to 30% of the total investment capital readily available in cash to purchase a franchise. Requirements for investment capital vary from franchise to franchise, so you need to contact the franchises in which you have an interest for more specific information.

When you are preparing to make an investment, including buying a franchise, you should know your credit score, your net worth, and realistically, how much capital you have to invest. A financial advisor may be able to help you with the assessment of your financial strength and provide additional guidance.

Sources Federal Trade Commission
MyFICO.com
Entrepreneur Magazine