Q&A: Buying a Franchise

Dear Liz: My wife has an MBA and essentially has been a homemaker due to having a disabled child. She would like to go back to work and has asked me to co-sign a $1.5 million loan to buy a franchise. In addition, she would like to use all the savings we have—$140,000—for a down payment. I am afraid to do this as it took over 20 years to get the emergency fund collected. She earlier suggested using my 401(k) retirement fund for this business. My fear is that she will not be able to manage this business well and I will have to add this on to my own job. The business may fail and all the money would be lost. She is so mad with me and will not talk to me again. Please help me with this.

Answer: Your wife understands that her long absence from the workplace makes it unlikely that she will ever see the kind of salary that an MBA normally earns. So she's decided to bypass regular employment in favor of entrepreneurship.

If there were a decent chance of her succeeding, this enterprise might be considered a gamble. Given the circumstances, however, it's almost certain to fail. If you commit every spare dollar to the down payment, where will you turn when the business needs additional infusions of cash, as most businesses do in their early years?

There are other businesses she could start and other franchises she could buy that wouldn't require committing such a huge chunk of your resources. The fact that she's clinging to this one idea doesn't speak well of her ability to make good business decisions. Even worse is that when you expressed perfectly rational fears about her scheme, she responded by refusing to speak to you. It's definitely time to make an investment, but it should be in couples therapy rather than in a business.

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