Hear from Nigel Toplis, Managing Director of The Bardon Group as he talks about raising finance as a prospective franchisee.
Nigel brings some 20 years of experience in franchising to the group, is a fellow of Lancaster University, has written three books on franchising and was previously Chairman of the British Franchise Association (BFA).
He is supported by a team who have over 70 years’ combined experience in franchising with a wealth of experience in their own disciplines.
The Bardon Group is a specialist franchise operator with multiple franchise brands within its portfolio such as Recognition Express, Techclean and Kall Kwik.
Buying a franchise is a serious business and often requires a significant financial commitment. That said, raising finance as a prospective franchisee is much easier than raising investment to start a business from scratch.
Most established franchisors will have negotiated funding arrangements with the major banks and a number of the banks have a specialist franchise department to deal directly with prospective franchisees.
One of the main advantages of franchising is that the banks will look at you more favourably as a borrower, compared with someone starting up on their own. For an independent start-up the banks will generally lend up to 50% of the total cost but for an established and proven franchise then they will lend some 70% of the total cost.
Terms and rates vary of course between the banks – though in my experience they are all trying to be competitivein this modern age. That said you can’t just walk into a bank and walk out with a loan – there is a process involved and the bank wants to see your commitment to the business as well as your own assets.
Contact at least two banks – your franchisor should be able to give you contact details – and arrange a meeting with their franchise specialist. How prepared you are and how you present yourself will certainly make a difference and for me a professionally prepared business plan is a MUST.
The first thing you need to think about is exactly how much money you think you will need and my recommendation is to add three to six months of working capital to the overall cost of buying the franchise. This will raise the total amount of money you need to pay back but it will ensure you have the funds to get the business through it’s early growing pains.
Whilst the banks are keen to lend to the franchise community you as the franchisee will also be called upon to invest some of your own money. It is important therefore that firstly you have liquid funds available and secondly that you do not overstretch yourself. Franchise businesses have a good track record of success.
However, no-one can forecast for certain the performance of the business in the future – or indeed your own commitment and if you do not have a safety net then you can easily find yourself in difficulty.
On top of this, you also need to be honest with your franchisor about the source of the money.
There is no value in telling the franchisor that you’ve got ‘X’ amount in cash when in fact you’ve taken a bank loan for that amount and are paying high interest charges. If the franchisor doesn’t know then they can’t help or advise.
But if you do your due diligence and work with your franchisor, raising capital for that new outlet should be a comparatively stress-free experience.