Franchise Your Business Money talks
The UK head of franchising for HSBC, Andrew Brattesani, explains how not to get short changed when you decide to franchise your business
O
ver the years I have been asked numerous times about the importance of a banking relationship in business, and this is no less relevant to
franchising. The most common questions I am asked relate to how much will we lend, over what period, what security will we take and generally other ‘lending / borrowing’ type questions.
When asked about franchisor banking
requirements, I always respond in the same way. The prime source of income comes from the franchisees and therefore their cashfl ow determines the potential short- term cashfl ow facilities for the franchisor. That’s the beauty of franchising, as the performance of the franchisee and franchisor are totally interconnected. Of course, as the system becomes more mature, the cashfl ow fl uctuations tend to balance out, and generate more cash.
I look at the franchisors who are clients of HSBC, their other main funding facility used is a commercial mortgage on their head offi ce premises, long-term funding for a long-term investment.
I think it is business critical that a franchisor totally understands the funding requirements of the franchisees. With that in mind, the second element of this article relates to the type of funding a franchisee could require... When thinking about getting the best out of your banking relationship, you almost need to look at it as a recipe with a number of ingredients for a dinner party. Get the balance of the ingredients right, the food tastes great, get it wrong and you end up trying to start again with an hour before your guests turn up. Banking is more than about lending, yes
lending is an important part but having the correct structure and banking processes in place are just as important. So, to get things right, as well as your franchisees loan, they would also need:
• A cashfl ow statement for your bank manager to show where the peaks and troughs of cash are. People get hung up about what this is; it is all about following the money, in and out. I would say in the early days of a business this is key to your success, not a profi t and loss. This statement would pinpoint the short-term
cash heartbeat of the business and ensure as best you can that there are no unpleasant surprises
• A working capital facility: this is to refl ect this short-term cash heartbeat of the business as opposed to the loan, which is a long-term facility. Often in franchising this would take the form of an overdraft but could include debtor fi nance or trade fi nance to help pay for goods being imported before they are sold
• The ability to take credit card payments using a card processor, our preferred partner is GlobalPay
• The ability to make payments electronically, so the right combination of internet banking and relevant electronic payment capabilities are key
This information is needed by your potential bank manager, before they escalate to a credit function, to get the right recipe of facilities in place. Get this right and your future meetings, whether on the phone or face-to-face, with your bank should revolve around looking forward and how you can best served by your banking partner. n
Andrew Brattesani
andrew.brattesani@
hsbc.com
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