HOW TO FINANCE YOUR FRANCHISE BUSINESS
You have a burning desire to become a franchisee, you have found the perfect opportunity and you want to follow their successful and proven model. Now you need to find the money you need to invest.
It is well documented that franchises have a higher rate of success than start-up businesses which means the you may find it easier to secure finance for a franchise than your own start up. In addition it usually would cost less to buy a franchise than start your own business of the same type.
So now that you have done your due diligence, engaged with the franchisor and exhausted all the questions that you have you will need to consider where you will get the money to finance the franchise fee, to service the royalty fees, pay for the inventory (if applicable) and a buffer of working capital.
Considerations when you are considering applying for finance;
Establish your current financial status, this will determine what you are able to pay on a monthly basis. Determine what your net worth is right now. Use a personal balance sheet to list both your assets (what you own) and liabilities (what you owe). Under assets, list all your holdings, cash on hand, checking accounts, savings accounts, real estate (current market value), car (whether paid off or not), stocks & shares, and any other assets that you have and total the amount. Do the same with liabilities and then subtract your liabilities from your assets.
Take a look at your credit rating. There are three common ingredients that all potential lenders look for in a credit rating: stability, income and track record.
When you are applying for finance for a franchise I would expect the Franchisor to support you with the business plan. At The Athena Network we provide a financial spreadsheet (Financial Forecasting) and a Business Plan template to franchisees who are interested in applying for finance that includes;
1. Executive Summary
2. Products and Services
3. Market Research
4. SWOT analysis
5. Your Key Competitors
6. Industry Overview
7. Marketing and Sales
8. Personal Profile and Team Skills
11. Financial Forecasting Notes
Work with your Franchisor to co-create the Business Plan, they created the business and will have a more intimate understanding of how it works.
SOURCES OF FINANCING
The traditional route to financing your franchise would be to approach your bank. If your Franchisor has provided you with the Business Plan and credible financial projections the next step for the bank would be to run a credit check.
The Funding Circle in the UK can provide you with funding to expand, hire staff, boost cash flow or fund your next step with finance. The turnaround on the money can be within days.
Read how they established their business here https://www.fundingcircle.com/uk/about-us/
Outset Finance have supported several of our new Franchisees to fund their business.
Outset Finance provide Government backed loans to start or grow your business and they always have a love fixed interest rate (currently 6% as of 16.7.18)
FRANCHISE FINANCE TIPS
1. Talk to your franchisor before searching for outside financing; get approved or pre-qualified.
2. The most common source of start-up capital is friends and family. Use them.
3. Seek out lenders that understand not just small business but franchising as well.
4. Be totally honest and upfront with lenders. Hide nothing. Be prepared to explain everything.
5. Neatness counts. Fill out your credit and loan applications clearly. Typed is better.
6. Don’t weigh down your loan application with attached documents.
7. Don’t exhaust your liquidity by paying off outstanding debts before filing a loan application. Lenders want you to have capital available.
8. If you lack liquidity, find a partner with money.
9. Consider equipment leasing to conserve start-up capital and improve the appearance of your balance sheet.
10. Keep debts and expenses to a minimum. Many business owners take on too much debt, forgetting that cash flow must pay that debt.
11. Consider buying used equipment, furniture, vehicles, etc.
12. Let your fingers do the walking on the Internet before wasting time, energy, gas and phone calls. You’ll find useful information. Some sites even allow you to file loan applications online.
13. Don’t overlook angel investors and venture capitalists.
14. Avoid dipping into your retirement money or your kids’ college funds. Any startup-even a franchise-is a risk.
15. Don’t give up.
Source of tips: The Small Business Encyclopedia, Start Your Own Business, Entrepreneur magazine and Entrepreneur’s StartUps magazine.
To find out more about The Athena Network Franchise Opportunity click here