One of the results of rising house prices is that many people are using the increased equity in their homes to realise a dream and fund them into their own business. Franchises are particularly attractive to first-time business owners as they can be in business ‘for themselves, but not by themselves’. Having an established brand, proven business systems and specific training and support are all compelling reasons to choose a franchise.

Buying any business is a big decision that often requires a significant capital investment secured over the family home. It therefore demands careful scrutiny of the financial risks involved, as well as other factors such as family support, time commitment, relevant experience, your aptitude for business and your people skills.

The first step for any potential franchisee is to work out your personal equity or net worth so you can determine what franchise systems are realistically within your financial reach.

You can determine your personal equity by compiling a personal statement of financial position. This involves noting what you own – your large personal assets, such as your house or investment property – and deducting what debt you owe. The balance left over represents your personal equity. We suggest you only include assets valued at over $5,000.

In the example in figure 1, Arthur, our potential franchisee, has a house which has a current market value of $600,000, a car which has a current market value of $20,000, a redeemable life insurance policy with a current value of $10,000, and ... Read more