Franchise Advice
“When it comes to arranging finance, your business plan needs to include all the information required by the lender that is evaluating your proposal”
raise the money I need to start up my franchise business?” and “How do I know the total amount of capital that I need to borrow?” There are numerous components to both of these questions, which need to be broken down so we can address these queries effectively. Firstly, before you start searching for finance,
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you need to understand the total investment required, including all costs associated with the set up of the franchise. This is more than just the franchise fee – you need to consider elements such as the amount required for working capital, vat and professional fees. In order to identify the total costs, you need to prepare a detailed business plan with a full set of comprehensive financial projections. You can then be clear how much of the total investment you can contribute and how much you will need to raise at the outset of your business journey. Within your financial projections, which I suggest should cover a minimum of three years, will be the projected profit and loss account, a cashflow forecast, and projected end-of-year balance sheets.
Although the business plan is your own roadmap for the franchise, when it comes to arranging finance, your business plan needs to include all the information required by the lender that is evaluating your proposal. It should start with an executive summary, which gives a streamlined overview of the business and funding requirement. It needs to identify the owners of the business, and provide details of their roles and any transferable skills gained from their previous roles. Furthermore, details of personal assets (house, investments and savings) and liabilities (mortgages, loans, credit cards)
couple of questions we are asked on an almost daily basis here at Franchise Finance are: “How can I
must be included. The lender will want to see that your overall household income is sufficient to cover your overall household expenditure (taking into account the money you will earn from your new franchise). The business plan should contain information about the history of the franchise, the business model itself, how the franchisor will train, support and develop you, and how the products or services will be marketed. It should also clearly set out your business objectives. Keeping your personal credit score in at least reasonable shape is of paramount importance when applying for finance. If you have not checked your personal credit record recently, then it makes sense to do this and deal promptly with any adverse issues. It is likely that you will be asked to provide bank statements to evidence the fact that you are operating your accounts well (within any agreed borrowing limits).
What are your lending options? Long gone are the days of having only one or two options to raise capital; the landscapes of availability and accessibility have changed drastically over the years, which is great news for the franchise industry! The reduced risk presented by a franchise format (compared with a totally new startup concept) provides lenders with confidence, and helps when it comes to them making underwriting decisions. Different lending options and providers suit different applicants. Here are just some of the options available
to prospective franchisees: • High-street banks: traditional secured/ unsecured lending, flexible business loans and overdrafts
• Asset finance providers: both hire purchase and lease facilities
• Challenger banks: unsecured fixed rate business loans with quick decisions
• The government’s Start Up Loans scheme: £500 to £25,000 government-backed loans
• Alternative lenders: including loans with credit card percentage repayments.
Many factors need to be considered
before structuring your borrowing application, such as the availability of security, the time frame in which a decision is needed, personal credit rating, the ‘make up’ of what is being financed, and the desired term of the borrowing. If this is an area in which you are not experienced and need some guidance, it’s worth talking to the professionals and seeking advice before progressing. Two key questions need to be fully addressed
and answered before you can approach a lender for finance. Firstly, can you evidence how much do you need to borrow? Secondly, can you demonstrate that the business can afford the borrowing and is therefore a viable opportunity? If you take the above into account and can satisfy these two questions, you stand a good chance of being successful in arranging finance for your franchise. n
Rob Orme QFP is the marketing manager at Franchise Finance. He is the youngest recipient of the British Franchise Association’s qualified franchise professional award.
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