Franchise Advice
A good franchisor will encourage and help you with business planning, both at the outset and on an ongoing basis – helping the business to get off to a good start and continue to develop. All this support means that banks
are much happier to lend to a start-up franchisee. Before you talk to the bank about
borrowing money to start your franchise, you need to establish how much funding you will require. You should do your homework and fully research what you will be getting for your money both at the outset and once your business is established. There are a number of costs that need to be taken into account besides the initial franchise fee. You will need to budget for any professional charges related to the property transaction, such as a lawyer, architect or surveyor’s fees, as well as insurance. There will also be marketing costs involved with an official launch of the business. Working capital may also be required, including what you need to live on prior to the business generating cashflow and profits.
“A good franchisor will encourage and help you with business planning, helping the business to get off to a good start and continue to develop”
owner) and a business owner (the franchisor) who wants to expand their activities. The venture is governed by a legal agreement or contract. This gives the franchise owner the right to operate using the franchisor’s trade name/trademark, in accordance with their business format for a specific period of time.
In broad terms, franchising is a safer option than going into business on your own. A franchisee should have a tried- and-tested format to follow, training and support from their franchisor, and a network of fellow franchisees to speak to – so, although you own and operate the business, you are not doing it alone.
You will need to prepare a business plan and a cashflow forecast for the first two years of the business, ensuring you understand the figures, what they are based on and how much you will have to turn over in order to break-even. You should complete a full list of your personal income and expenditure: mortgage, household bills, partner’s earnings etc. Consider what security you can give to back up your loan eg equity in your home. It is important to consider the financial implications carefully before buying a franchise; you are entering into a long- term commitment and need to get the finance right at the outset. Don’t do it on a shoestring, but don’t borrow more than you can afford to repay. n
CATHRYN HAYES
Cathryn Hayes is head of franchising at HSBC
February 2014 |
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