Franchise Financing – A Guide To Securing Your Buy-In
Before you even begin entertaining ideas about securing a business franchise, you need to be confident in what the investment entails. You’ll also need a certain amount of working capital for whatever territory you select, and access to small business funding isn’t as straightforward as you might think.
Banks have been known to offer more favourable loans to those setting up franchises as opposed to small businesses. However, without knowing which banks offer such preferable rates, you could miss out on a once-in-a-lifetime opportunity.
It’s all about knowing the right people and procedures. So, in order to support the franchise industry, we put together this guide to help you secure your buy-in.
Do your research
Starting with the British Franchise Association and their resources, begin mapping your business plan with the pros and cons of franchising in mind. You’ll need a business plan to secure bank investment, so factoring in benefits like bulk purchasing and negotiating power, along with advertising and promotional support, demonstrates that you’re conscious of the current market climate you’re entering.
Make a note of the potential challenges your chosen franchise is currently facing and determine which franchise opportunities you expect to capitalise on once you join the ranks. Create a SWOT analysis that shows the ingenuity you intend to bring to the sector and how you can apply it in the short, medium and long term. These points will inform your pitch to the bank (and chosen franchisor).
Additionally, see what franchisees are currently doing (especially at a local scale) and compare that to competitors in the area you wish to operate in. For example, if you recognise that local cleaning companies barely embrace social media, make a note of it and devise a plan on how you would use that to your advantage. Alternatively, research the typical audience of a specialist cleaning service and present ideas on how you would break into other markets.
See what your chosen family can offer
Whatever the size of your investment, you need to speak with your prospective franchisor about your circumstances. In all likelihood, they can refer you to a number of institutions that are best placed to advise on loans, cash flow and predicted turnover. Some franchisors will have relationships with banks or investors who cover higher venture costs simply because you are choosing to become a franchisee with this certain business.
The vast majority of individuals at this stage may get 50% of their start-up costs covered by a bank or investor. But you’ll need a little more than working capital and an initial investment – most franchisors will expect you to have a strong credit score as well. Remember: they’re investing in you as much as you are in them.
With Rainbow, however, thanks to our low-cost franchises, we’ve managed to secure partnerships with various banks. This enables us to secure an average success rate of 70%, applicable to any prospective franchisees seeking small business funding with us.
Work out all the costs
Now you’ve decided on your franchise and have worked out a base figure, you’ll need to list additional costs that could trip you up further down the line. Outside of the initial franchise fee, you may be expected to pay the following:
- Training fee – If the franchise you’re entering requires a certain level of skill, you may be expected to cover the cost of any workshop learning or personal development fees.
- Shopfitting costs – If the franchise you’re entering requires a physical unit, you may be expected to cover the cost of the fit-out and branding of the space.
- Vehicle lease – Should you need to hire a van or specific vehicle to service clients, you may be expected to cover the lease repayments and subsequent driving costs.
Franchise businesses at Rainbow don’t have to worry about hidden costs. We have an initial investment starting from £47K excluding working capital and can give you a clear outline of what you’ll need for working capital.
Beyond that, we’ll also assist the creation of your detailed financial forecasts and ensure you can cover the rent, utilities, hiring and equipment costs until you start making a healthy profit.
Our advisors are experienced in supporting franchisees from all financial backgrounds. So, if you would to join a franchise family that offers complete guidance and onboarding support, get in touch today.