Im a bit surprised that a 5M franchise can only make 20%, is that 20% ROI per year? So it would probly take 5 years to get the ROI of 5M back? Because most franchises I saw state that it usually only takes 2 to 3 years to get the ROI, or are these the more costly franchises? Also, why should I have equity? Also, what is a sensitivity test and how do I do that? Thanks again Aquacharly. 
The 20percent is just my assessment.
I assess on the assumption that everything is by the books: declaration of all income & payment of all taxes; full compensation to all employees as per laws, etc etc. AND a more realistic (to me, after crunching numbers & understanding others' experience) sales assumption.
If others say 60percent, fine. Good for them. But look into the assumptions used to project that -- like the sales volume. Pag hindi mo na meet yang 60percent mo, eh kasi your location not as good, your turn-over low, etc etc etc. yan say nila. A franchise IS a business, success depends on many factors. It isn't like a time deposit with a guaranteed return rate.
Big franchises take more than 2-3 years to recover.
It's DEALS that are quickly recouped, or lose your investment in a heartbeat.
Some businesses are easy to recoup too. Bars, for one.
Also, what is a sensitivity test and how do I do that?
Pls google financial sensitivity test. This is not a convenient forum to explain the concept.
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. The only thing we dont have is a contingency fund. So if our house doesnt get rented for a little while or I lose my job, then wed be in trouble but I doubt both of those things would happen. However of course I should still try to save for a contingency fund.
Also, why should I have equity? Also, what is a sensitivity test and how do I do that? Thanks again Aquacharly.
CONTINGENCY FUND. You should always factor that in, anything goes, specially with kids.
IMO, kids are the iffy factor. Just coz you can't turn your back on their needs.
But of course, you may not need 1. It's just a personal view of mine, coz you have kids.
You may not lose your job, but what if you get sick?
What if someone in your family requires hospitalization & expensive medical intervention?
What if your tenant burns down your house? Insurance pays after quite some time.
Mga ganong Bulaga we pray don't happen, ever.
As for the loan, the way I view it -- it's got a fixed repayment sched. Fixed, which you can perhaps extend if needed. But still -- it needs to be paid back.
Putting in equity is like a buffer, IMO.
But see, JOBAN99 choosing a business is a very personal thing, same as one's risk profile.
Hubby and I are big risk takers, coz our opinion is: bigger risk = bigger gains
That's why we don't like loans/OPM -- coz walang kelangan consider na constraint when making diskarte/taking risks &. coz if we lose it all -- it's easier to re-start, that's our opinion.
Timing din is critical, so 1 example is -- we gave ourselves 5 years before having kids. Nagawa namin.
And, having no loans & no kids, and living below our means (we lived in our own townhouse, and rented out his house, for example) -- we took big risks. He concentrated on our main business, I maxed time on full-time consultancies (in govt agencies -- consultants are paid at least 10x the plantilla position; and you get multiple consultancies from subsidiaries).
We declared no dividends (hahahahaha - 2 lang kami own it) & imported heavy equipment & bought properties to lease out or use as depots.
We have kids, and we still take big risks.
BUT, JOBAN99 -- our way just fits our risk profile and skills. Others have other ways, better even. So just crunch your numbers well. No one approach guarantees success. So, study the business and industry "Winning Line" & interpret that in the context of your resources & constraints.
Good luck!!!
