When you’re investing in a franchise using bank financing, you should assume that you will not be making money in that business until that loan is paid off. It sounds great to use someone else’s money, but they get paid back first and with interest! In a start-up business, cash flow takes time to build. Factor in a loan payment, and now you need that much more revenue to cover those fixed costs. But just because your income is delayed until that loan is paid off does not mean it’s not worth doing. Project forward to a debt-free business and look at your future then! All along the way, you will be building equity and enjoying tax shelters as well.
A business is not a kill today eat today mentality. If you look at the immediate cash position of a new business with a loan, you will never do it. That’s very short-sided! But, pay off that loan and factor in the growth of the franchise brand, and equity, not cash flow, could exponentially grow your investment.