Franchise Advice F
ranchising is generally regarded as a less risky way of setting up in business than if you were to start your own independent business. Although, as with any
business opportunity, there are still risks. It is essential that anyone considering investing in a franchise thoroughly researches the market and takes appropriate professional advice. Banks will require a business plan to consider financial support for your business. Any lender will want you to demonstrate that you understand your chosen market and that you will be able to meet the financial commitment you are taking on. Banks will be able to provide a business plan template detailing what information should be included in the document. Some franchisors will support you in developing an effective business plan.
The business plan should be punchy and a common mistake is to make it too detailed. Ensure that it grabs the bank manager’s interest. Presentation of the plan is important to create a positive impression and you should practise delivery of your plan beforehand so that you come across professionally. Let the bank manager have a copy of your business plan in advance so they can prepare for the meeting. Expect your plan to be challenged – you should be able to confidently answer questions about the operational and financial aspects of your plan.
It is often assumed that a business plan is needed just to secure funding. Whilst this is an important benefit of producing a business plan it can also assist with the management of the business such as monitoring the ongoing performance against the original benchmarks and identifying areas for development. The plan is a working document and should be regularly reviewed and updated as the business develops.
A business plan should cover the following areas: • Executive summary • Personal details (contact details, age, marital status, dependants)
• Franchisee’s experience, skills and attributes
• Objectives/mission statement • Overview of the franchise • Local market (research, location, customers, competitors)
• Business operation (premises, IT, vehicles, equipment)
• Key personnel/management team • Marketing strategy • Borrowing requirements • Capital stake and security • Personal assets, liabilities, income and expenditure statement
• Financial projections (cashflow and profit & loss forecasts)
• Financial assumptions • Three years’ financial accounts (existing businesses only)
• SWOT analysis (Strengths, Weaknesses, Opportunities, Threats)
• Exit strategy
“Don’t be put off if you haven’t got any security to offer the bank. The Government-backed Enterprise Finance Guarantee Scheme may be available for those who have a strong business proposal, but who lack security that the banks usually require”
When looking to finance your franchise business it is best to approach a franchise specialist bank. The bank’s franchise departments regularly evaluate franchises and monitor the ongoing performance of franchisees. The level of finance available from the bank will depend upon the strength of the franchise system as well as your business plan. Typically, for well established franchises, the bank will lend up to 70 per cent of the total set-up costs including working capital. For newer, less proven franchise systems, the amount of finance available may be reduced. The bank will probably require security for the loan, which commonly will be a legal charge over a residential property with sufficient equity. Don’t be put off if you haven’t got any security to offer the bank. The Government-backed Enterprise Finance Guarantee Scheme may be available for those who have a strong business proposal but who lack security that the banks usually require.
Banks want to support businesses with sound propositions, so don’t be afraid to approach them for guidance. The right banking partner will talk you through what would best suit your needs and answer any queries you have about financing your business. n
RICHARD HOLDEN
Richard Holden is head of franchising for Lloyds Banking Group
October 2013 |
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