Business Studies

benefits of owning one of these franchises would outweigh its potential costs and challenges. 

Post 2

Now that you have some idea of what it costs to start a franchise, consider where the money would come from.  Specifically, what would be the cost to borrow the money to start a franchise? 

For this discussion, review the submissions your peers made in Post 1.  Note the costs to start three different types of franchises.  If the cost provided is a range, use the average of the high and low for your calculations. 

If a franchisee wanted to borrow those amounts of money, determine the total amount they would pay back over the life of their loan.  For example, borrowing $10,000 at 6% compounded monthly for 9 years would require a total repayment of $12,966.19.  Assume three different scenarios for these businesses loans: 5 years at 5% annual interest; 10 years at 6% annual interest; and, 3 years at 4% annual interest? 

Once you get a good look at how the length of the loan and the interest rate affect the total amount repaid, consider that a startup business rarely makes money in its first year.  To start the business, you would probably need at least a year’s operating expenses, in addition the capitalization requirement.

Provide a summary of your analysis.  Are the repayment amounts what you expected, or are they much higher or lower than you thought it would be?

You can use online calculators for the bulk of the math above.  There is a good set of online financial calculators at http://tcalc.timevalue.com. (I used their Fixed Rate Mortgage Calculator with the ìHome priceî being the amount I wanted to borrow, a ìDown Paymentî of 0%, a “Loan Term” of 9 years, and an ìInterest Rateî of 6% to calculate the example above).

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