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- Edition #2 - Net Worth & Liquidity Requirements
Edition #2 - Net Worth & Liquidity Requirements
1/15/25
Christian Dadulak
January 15, 2025
Happy “What’s The Deal Wednesday” Franchise Friends!
Welcome to the first edition of the “What’s the Deal With Franchising?” Newsletter.
In Today’s Newsletter:
💡 Franchise 101 - What’s the Deal with Net Worth & Liquidity Requirements?
🛝 Breakdown of the Sky Zone Franchise Opportunity
🤝 Recent Client Deal - Degree Wellness
If you haven’t already, hit the subscribe button below to learn what the deal is in franchising every week…straight to your inbox. No spam. No fluff. Just the deal.
What’s the Deal…
What’s the Deal with Net Worth & Liquidity Requirements???
Contrary to popular belief, you can’t just buy a franchise.
Even if you have the money to write a check for the investment, franchisors want to ensure that you’re not investing every last red cent that you have into the business.
They have a fiduciary responsibility to verify that you have enough leftover assets, liquid or otherwise, to help you make it through the initial ramp-up to profitability. They want to make sure you have a financial buffer. You NEED a financial buffer.
What is Net Worth & Liquidity?
Gonzalez-Ribeiro, A. (n.d.). What is liquid net worth and why is it important? Self. Retrieved December 25, 2024, from https://www.self.inc/blog/liquid-net-worth
It can be frustrating that these requirements are in place if you don’t meet the minimums for a brand that you have a lot of interest in, but these requirements are there for a reason.
Different Franchises Come With Different Requirements
I’m over-simplifying here, but franchises often boil down into two broad categories: brick-and-mortar retail vs service-based. And these categories, due to their nature, typically come with different minimum financial requirements.
Brick-and-Mortar (physical location) Retail Opportunities
These options are usually going to require a higher net worth and liquidity than lower investment, service-based concepts.
Some examples might include massage spas, recovery & wellness clinics, boutique fitness, trampoline parks, quick-service restaurants (QSR), etc.
Net Worth: Generally, a brick-and-mortar concept will require a minimum net worth of at least $500k, but the range can be from $300k to $1M+.
Liquidity: Typically ranges from $100k to $250k+.
It all really depends on the franchise and the investment level.
The reason for this is that these concepts require a buildout to get the location ready to serve your clients/customers/members/etc.
When I use the term “buildout,” I mean the leasehold improvements (construction), furniture, and fixtures to your location to give it the look & feel of the brand to get the space operationally ready.
For those that don’t meet those requirements, it might make sense to look at…
Service-Based Opportunities
these typically require lower net worth and liquidity requirements because they usually come with lower investment ranges.
These could be home & property services, mobile tutoring, senior care, staffing agencies, and so many more.
Net Worth: $250k-$500k seems to be the range for most concepts these days, but of course there are opportunities that fall outside of this range.
Liquidity: $75k-$200k is the general range for liquidity.
Why do these typically come with lower minimum financial requirements? Because they often don’t require a physical location…there is no build-out and construction necessary, which is often the bulk of the investment in brick-and-mortar retail franchises.
Sometimes these might require a physical office space, a warehouse, or storage space, but the locations don’t require a buildout because they’re usually not consumer-facing - your customers are not meeting you there, you’re not conducting business there.
Overall, these opportunities simply tend to come with lower price tags to get into, so the financial requirements are often much lower.
How Is Net Worth & Liquidity Calculated?
Liquidity is relatively easy to calculate. This is basically anything that can be converted into cash relatively quickly…as in, almost overnight quickly…without loan and without penalty.
Net Worth can be a little bit more difficult to calculate because there are more moving parts. Net Worth is simply your assets (liquid and non-liquid) subtracted by your liabilities (anything you owe, your debts.)
Net Worth = Assets - Liabilities
Below is a link to a tool you can use to help you to help you calculate your estimated net worth.
If you don’t meet the requirements for your favorite franchises, fear not. You have options, options I’ll break down in future newsletters. It often comes down to getting creative.
-Christian Dadulak, Franchise Advisor
Franchise Deal of the Week
Sky Zone
Brand Story:
The Sky Zone franchise presents an exciting opportunity to tap into the rapidly growing market for active entertainment for kids of all ages, designed for casual fun or even organized activities.
Sky Zone offers 60+ different attractions throughout their parks, such as trampoline courts, dodgeball, and obstacle courses.
They have 200+ open locations nationally between domestic corporate and franchise parks.
Fun Facts:
Sky Zone sells more socks than any other retailer, including Amazon
Sky Zone welcomed 40,000,000+ guests last year, more than Six Flags, Disneyland, NBA and NFL.
Sky Zone has received 2 billion brand impressions since January 2018.
Multiple Revenue Streams:
Day Passes
Memberships (Recurring Revenue)
Birthday Parties
Corporate Events
Teen Night
Fuel Zone Cafe
Facility Rentals
Merchandise Sales
By the Numbers:
Minimum Financial Requirements…
(You need to meet these requirements at a minimum to be considered for this franchise)
Net Worth - $1.8MM+
Liquidity - $600k+
Item 7 - Estimated Initial Investment Range
This range typically contains everything to get the business up and running, including the franchise fee and 3 months of working capital
Investment: $2,465,500 - $4,221,000 (based on a 27,000 - 39,000 square foot facility)
Approximate Down Payment w/ SBA Loan: $493,000 - $844,200 (assuming 20% down)
Item 19 - Financial Performance Representations
For “Model Parks” (At least 25,000 Square Feet & 4+ private party rooms):
Average Gross Sales: $2,894,787
Maximum Gross Sales: $6,256,721
Minimum Gross Sales: $1,350,657
Median Gross Sales: $2,878,874
Average EBITDA: $836,312
Average EBITDA %: 28.9%
Median EBITDA: $761,384
Median EBIDTA %: 28.0%
(EBITDA - Earnings Before Interest, Taxes, Depreciation, & Amortization are taken out - so this is before debt payments like an SBA loan, taxes, and more.)
Fees:
Royalty: 6% Gross Sales
Brand Fund: 2% Gross Sales
Franchise Fee: $75,000
Total Locations Open: 121 Franchise Locations Open / 192 Franchise Locations Awarded
Number of Franchisees: 130+
Real Estate Requirements: 20,000 to 40,000 Square Feet; Average Model Building Size is 30,000 Square Feet
Employees Needed to Start:
General Manager
Operations Manager
Events Manager
10+ Crew Members
Territory: 150,000+ People
*Refer to the most recent Franchise Disclosure Document. This information may have changed since first published and is provided for informational purposely only. I recommend that you always verify feedback, investment amounts, and offers for the franchise opportunity directly with the franchisor prior to deciding to invest. No offer is being made and can only be made by the franchise’s disclosure of the Franchise Disclosure Document (FDD)*
Client Deal of the Week
One of my recent client success stories was for a husband and wife team in Auburn, Alabama who bought the rights to open a single location of Degree Wellness, a full-service recovery and wellness clinic offering modalities like cryotherapy, red light therapy, infrared saunas, and more.
My client is a registered nurse by trade and her husband is a multi-location restaurant operator.
The ultimate goal was to start a business in an industry that my client is passionate about, something that would allow her to transition out of her 9 to 5 career and into full-time business ownership.
Why They Chose Degree:
Predictable Revenue - 80% of revenue comes from memberships
FranWorth Backing - 450+ of combined franchise experience to help emerging brands scale (NFL Hall of Fame Drew Brees is a partner at FranWorth)
Strong Founders - Amanda Lightfoot and her husband Tom are extremely impressive founders with backgrounds in the tech and hedge fund industries, respectively
Simple Staffing - only 2.5 labor units are required per shift…the equipment does most of the work here & doesn’t call out sick or quit
Purpose - a brand that helps people
Background Fit - Leverages my clients background as a nurse
That’s it for this edition!
Let me know what you have questions about, what you’re curious to learn, what franchises you would like for me to break down, and more.
I want this newsletter to give you what you find most valuable so let me know how I can improve it. If it needs more information, less information, to be longer, shorter, share more industry news, etc, I can make that happen.
See you next week!
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Disclaimer
The views, opinions, and information expressed in this newsletter are those of the author(s) and do not necessarily reflect the official policy or position of Franchise Sidekick. This newsletter is in no way affiliated with Franchise Sidekick. This content is provided for informational purposes only and is not intended to represent the views or endorsements of Franchise Sidekick.