Franchise Advice
understand the figures, what they are based on and how much you will have to turnover in order to break-even. 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.
“A good franchisor will encourage and help their franchisees with business planning”
Person – Who are the banks lending the money to? We will carry out a full review of your background and reliability; your training, qualifications, and track record; financial resources and suitability to run the business.
Amount and Purpose Apart from the actual amount, we will also look at the purpose for which the money is going to be used. For an established franchise, most banks will lend up to 70 per cent of the start-up costs, for new franchisees the figure will be 50 per cent.
Repayment
A lot will depend on how the business performs and, as always, a well-thought- out, structured business plan and cashflow forecast will demonstrate that your business can afford to repay any lending.
Security We will also assess the risk of lending and decide whether security is required.
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 initially and also once your business is established. There are a number of costs that need to be taken into account; you may need to think about professional charges related to any property transaction, such as lawyer’s,
architect’s and surveyor’s fees, as well as insurance. If employing staff, there may be recruitment and uniform costs and there will also be marketing costs involved with an official launch of the business. Working capital may also be required, which is what you need to live on prior to the business generating cashflow and profits. You will need to prepare a business plan and a cashflow forecast for the first two years of the business, ensuring you
Interest and Fees When we set an interest rate, we take account of a number of factors including your stake in the business, security deposited, business sector and our evaluation of the risk involved. n
CATHRYN HAYES
Cathryn Hayes is head of franchising at HSBC
April 2014 |
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