How do I work out how much to invest in a business?
18 January, 2016
My advice is as follows:
Start with what you need to live your life as you are doing right now
Then find a franchise that will potentially and realistically give you that income
- Then check if you can raise enough money (remember to factor in any borrowing costs!). A franchisor will have plenty of serious options for you to finance your choice or they will tell you exactly what you need to do if you cannot afford things right now.
Being realistic about what you really need from day one will help you in your choice of franchise investment. What most people try to do is strip everything back and justify how they can live off £50 a week. However, if you have two children, a dog, a mortgage, two cars, an iPhone, Sky TV and play golf it is very unrealistic to think that you can suddenly slash your costs. And in reality you will not.
If you are looking at a snail washing franchise because it seems really cheap at £200 to set up, you can now shift your focus to the amount of money you are likely to make – your Return On that Investment. So although £200 seems cheap , getting £1 per year in the 3rd year revenue from that business isn’t going to feed you, let alone sustain your way of life.
So the snail washing franchise is cheap in one sense but very POOR VALUE. Whereas the elephant cleaning franchise, which has a £200,000 set up, (that you thought was expensive), will bring in £100,000 a year in profits its 2nd year.
Now which one seems like the better deal? Which one can you afford to choose and which one can you afford not to? So many people make the mistake of looking at the Investment value of a business where as what you should start with is the Return On Investment.