Investment, liquid capital and net worth
1 min read
These three figures are routinely collapsed into one in franchise marketing. They are not interchangeable. Keep total investment, available cash and net worth separate when comparing opportunities, and ask the franchisor to clarify any requirement that is missing.
Terms used in this guide
- FDD (Franchise Disclosure Document)
- The document a franchisor must give you at least 14 days before you sign or pay. It is organized into 23 numbered Items covering costs, obligations, history and the agreements.
Total initial investment
The estimated range to open and run the business through an initial period, disclosed in Item 7. It is what the project costs, regardless of where the money comes from.
Liquid capital
Cash or near-cash the franchisor says you must hold to be approved. It is a qualification threshold, not a spend estimate. Some franchisors state it as a hard minimum and some as a recommendation, so ask which applies.
Net worth
Assets minus liabilities. It is a balance-sheet qualification and includes illiquid items such as home equity. Meeting a net worth requirement says nothing about your ability to fund the ramp.
Treat a missing figure as unknown, not zero
If a franchisor does not state a requirement, treat it as unknown and ask. Assuming it is zero can make an opportunity look more affordable than it is.
Unsure how your figures fit a franchisor's requirements?
A consultant can help you see how your available cash and total budget relate to a franchisor's requirements.
Request a free consultation