FRANCHISESERVICES The beauty of borrowing
Rob Orme, franchise relationship manager at Franchise Finance, on how the right approach to funds can free you
money, the quesition being: how are you going to finance your franchise venture? Borrowing can make what appears impossible, possible. Imagine your dream franchise is a large gym brand, with total startup costs around £400,000. You may have available cash reserves for the venture of £150,000, which could leave you fearing the rest is unattainable. Depending, however, on your personal circumstances, asset versus liability profile, income versus expenditure and your credit history, plus the strength of the brand you're investing in, you could borrow anywhere from 50 per cent of the total startup costs to 80 per cent under certain circumstances.
A
"Borrowing can make what appears impossible, possible"
The startup period can be challenging; initial capital outlay may be high, and while sales start low (but grow) during the first few months of trading, working capital is paramount. Having the right amount of capital to sustain you is vital to success and borrowing should not be overlooked as a method to achieve it. Nor is it restricted to just traditional bank loans. Where there is an equipment, machinery or vehicle requirement, applicants can benefit from asset finance (lease or HP), which frees up loan capacity for other initiatives/needs and allows the franchisee to repay over an asset’s useful life. Think of an asset as an employee, working for you every day to generate income. You wouldn’t pay an employee their salary upfront for the next five years hoping that they will deliver for you, so why pay for an asset in this way? It’s much more sensible to pay for it over time while it earns income for you. You could be forgiven for thinking that
borrowing is only an option at the outset of your journey, but this is also not the case! You may find yourself in a strong
t the start of your franchising journey, one of the first decisions you’ll have to make is about
position, with a great opportunity in the offing but a lack of liquid capital holding you back. Do not assume your only option is to invest more of your own money at this point – if your accounts are strong and you can demonstrate a good business case for borrowing, funds could be available in as little as 48 to 72 hours! What about when things don’t quite go
to plan and sales have taken a little longer than expected? While we would always suggest you plan for this eventuality at the outset and ensure you secure sufficient funding at the start, you do still have the option to approach lenders for additional working capital. As you can imagine, it is much harder to secure funding at this point, so this is where borrowing something at the outset and retaining an emergency cash reserve from your own savings could be more beneficial. If you have accurately produced – and importantly regularly use – your business plan, you shouldn’t run into cashflow difficulties. But you can be confident you have those reserves there just in case. It’s oft-quoted, but it’s true: ‘Cash is King’!
While in some rare circumstances it may be viable to entirely self-fund your franchise by
utilising all your cash reserves, this option may not leave you with anything in reserve. I am sure you can think of many businesses that have failed because they ran out of cash, but how many fail because they have too much cash? Remember, though, you aren’t alone
in your journey. The franchisor will have support in place to assist you with the day-to-day running of your business. Plus there are independent experts out there to assist you with other aspects of starting and running your own franchise business – so speak to the professionals! Franchise Finance is a team of award-
winning experts who assist franchisees and franchisors on their business journeys with arranging finance, business planning and training services. l
CONTACT Franchise Finance Finance services 01844 355 575
www.franchisefinance.co.uk info@franchisefinance.co.uk
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