Can I Replace My Income with Franchising?

Can I Replace My Income With a Franchise? Real-Life Insights From Franchise Owners

When you're considering buying a franchise, one of the biggest questions you'll face is: Can this replace my current income? It's a valid concern for anyone looking to leave a 9-to-5 or add an additional revenue stream. The good news? Yes, it can be done! But, like anything in life, the details matter.

Let's walk through the process of replacing your income with a franchise, sharing real-world experiences from franchise owners Tyler and Ryan. We’ll also explore the practical steps you can take to ensure your venture succeeds—while keeping your financial security intact.

Different Types of Franchise Buyers

Before diving into the nitty-gritty of replacing your income, it's essential to understand the different types of franchise buyers out there:

Portfolio Client: This type of buyer already owns multiple businesses and wants to diversify with a new franchise.
Side Hustler: Someone who loves their 9-to-5 job but wants to own a business on the side for extra income.
Escapee: This buyer isn’t happy with their current job and wants to leave to pursue franchise ownership full-time, relying on it to replace their income.

If you fall into the third category—those who need their franchise to replace their current income—read on, as this blog is specifically geared to help you!

The Formula: Replacing Your Income With a Franchise

There are over 800,000 franchises operating in the U.S., and many people make a living off them. However, how quickly a franchise can replace your income will depend on a few factors, including the business model, cash flow timeline, and your personal financial position. Let’s break it down.

Key Considerations:

Understand Your Cash Flow Timeline
- Some franchises can cash flow within 3 to 6 months, while others might take a year or more. During the discovery process, validate this with other franchisees to get a realistic timeline for when you can expect positive cash flow.
Know Your Financial Position
- Before diving into franchise ownership, you need to figure out your current financial standing. This includes how much cash you have set aside (aka your “pot of gold”), what your income sources are, and what your expenses look like. Let’s break these down:

Step 1: Assess Your Cash Position

The first thing you need to know is how much cash you have on hand for unexpected costs or initial startup expenses. This will help you understand how long you can float yourself before the franchise starts generating income. Tyler, a franchise owner, shares his experience:

“I had my pot of gold set aside, thank God, and then we started cash flow pretty quickly. But if I didn’t work that thing backward, I would have been in trouble for sure.”

Tyler admits that he didn’t go through the process the right way. He had to rely on cash reserves from a previous business while waiting for his franchise to take off. The lesson? Make sure you know how much runway you have before your franchise starts making money.

Step 2: Determine Your Reliable Income

Whether you or your spouse will continue working, it's important to know what your reliable after-tax income looks like. This could be your W2 income from your job, rental income, or loans due to you. Here’s what to consider:

Are you keeping your job while starting the franchise?
Does your spouse work, and will they continue to?
Do you have rental properties or other investments generating steady income?

Ryan, another franchise owner, shared his story of maintaining his W2 income while opening his first franchise:

“My W2 income could cover a lot of that. I had plenty in my pot of gold, plus my income, to cover those expenses while I waited for the franchise to cash flow.”

By understanding his reliable income streams, Ryan was able to cushion himself financially until his franchise became profitable.

Step 3: Calculate Your Expenses

Now, you need to compare your income to your expenses. We break these down into four categories:

Fixed Expenses: Mortgage, utilities, car payments, and insurance.
Tax-Advantaged Expenses: Retirement savings, college savings, etc. It’s important not to halt these just because you’re starting a franchise.
Voluntary Expenses: Can you put off buying a new car or taking a vacation for a year or two while your business grows? Cutting voluntary expenses can significantly help your financial flexibility.
Unexpected Expenses: Life happens. You’ll want to set aside 10% of your overall annual expenses or six months’ worth of expenses for emergencies.

With your cash position, income, and expenses accounted for, you can now determine if you’re financially prepared to replace your income with a franchise.

Real-Life Examples: Tyler and Ryan’s Franchise Journeys

Tyler’s Journey: From Restaurants to Fitness

Tyler shares his experience of transitioning from the restaurant industry to opening five fitness franchise locations. He didn’t use an advisor, which made the process messier than it needed to be:

“I bought five territories… then I had to sell the current business while building the new one. I moved across the country… I didn’t have a lease for the first year. But thank God I had my pot of gold set aside.”

Tyler acknowledges that if he hadn’t prepared financially, his venture would have been far more stressful. Ultimately, his careful cash management paid off, and his franchise quickly started cash flowing.

Ryan’s Journey: Owner-Operator to Semi-Absentee

Ryan took a different route. He initially intended to be an owner-operator but quickly pivoted to a semi-absentee model when his previous employer asked him to come back as a partner:

“I was driving out there every day, doing pre-sales, but then I got the opportunity to partner in my previous job. I quickly hired a manager and shifted into a semi-absentee role.”

By hiring a manager and keeping his W2 income, Ryan was able to weather the financial storms and grow his franchise to four units.

Final Thoughts: Can You Replace Your Income With a Franchise?

Yes, it’s entirely possible to replace your income with a franchise. However, success lies in understanding your cash flow timeline, knowing your financial position, and having a solid plan in place. Work with an experienced franchise advisor to ensure you select the right franchise for your financial goals and lifestyle.

At Franchise Sidekick, our team is here to guide you through the process and help you make informed decisions about your franchise journey. If you're ready to take the first step, schedule a 10-minute call with one of our advisors—this could be the start of a life-changing opportunity!