Today I want to answer a frequently asked question we often hear from business coaches who are considering buying a business coaching franchise. That is: How much of my net worth should I put at risk to buy a business coaching franchise?
My answer is simple.
Ask yourself how much you can afford to lose.
I’m not trying to be melodramatic here, but I spent over 10 years in the business coaching franchise industry and have studied the performance of the business coaching franchise brands for another decade on top of that.
It is not atypical for a business coaching franchise brand to have a franchise failure rate in excess of 50%–some are even higher, unfortunately.
A business coaching franchise isn’t a sure bet. It’s an investment. And investments carry risks.
Anyone who specializes in investments will give you the same advice, whether you’re considering stocks, bonds, or any other investment.
Don’t make a risk so big that if your investment fails, it would ruin you financially.
Ask yourself how much can you afford to lose.
If you’re wealthy enough to absorb the risk of losing $100,000 to $200,000 if your franchise fails, then that’s fantastic. But I’ve seen a lot of potential franchisees put a pretty significant amount of their net worth at risk to get into a business coaching franchise.
And I’ve seen far too many of those folks lose it all.
Anybody who specializes in investments will give you the same advice, whether you’re considering stocks, bonds, or any other investment. First and foremost, ask yourself how much can you afford to lose.
How to Calculate Your Risk
Remember, a typical business coaching franchisee will invest about $200,000 in the first couple of years alone just to get the business going.
Expect to pay about $50,000 to $75,000 for the franchise fee, another $50,000 to $100,000 in working capital while trying to get your business up and running, and monthly royalty payments anywhere from $12,000 to $24,000 a year.
You can very easily invest as much as $200,000 to $250,000 within the first two or three years.
Take your time to think through this. You don’t want to be in a position where your home, your retirement, your net worth is exposed. There are considerably less expensive options available to help you get into the business coaching industry. Before you put your net worth at risk, ask yourself: could I lose this and stay afloat?
If you want more help thinking through your options, we’ve got an ebook for you: The Business Coaching Franchise Buyer’s Guide. We look at all the major business coaching franchise brands, analyze them, and show you how to do due diligence so that you can make an investment you’re comfortable with.