In a recent article, we examined some of the prime reasons why people do not proceed with either starting the business of their dreams or acquiring a franchise.
One of the premier reasons that people put forward for not starting an often well-researched franchise was their perceived lack of ability to finance the venture. Further investigation often showed that few of the would-be entrepreneurs had really explored all of the financing options available in today’s marketplace.
For individuals that are serious about acquiring a franchise, there are a number of different avenues that should always be explored. It is also prudent to properly explore all of the avenues, and then to compare options once all of the data is available.
1. Assess your own financial situation
Before you even think about financing make sure that you have a clear understanding of your own current financial situation, and have a viable financial plan in place. To do this, you should create a personal balance sheet listing both your assets and your liabilities. This allows you to determine your net worth, and will prove invaluable when it comes to approaching lenders.
Coupled with the creation of a personal balance sheet should be a personal or household budget. You need to create a clear and concise picture of your existing income and expenditures.
Undertaking this exercise often gives individuals the opportunity to consider where they might be able to prune their budget and create savings that could, in turn, enhance their franchise opportunity.
2. Franchise financing companies are your friends
It is important to note that there is a vast array of specialist franchise financing companies that
are there to guide you through the financing process. Search for the right company to fit your needs. They will be able to draw upon their extensive franchise expertise and provide you with a plan quickly and efficiently.
As we have indicated, there are a large number of companies that specialize in this type of financing and, therefore, it is prudent to ‘shop around’ and compare different plans and options.
3. Don’t overlook your bank
When it comes to financing a franchise, some may incorrectly assume that it is too specialized an activity for their bank or, in today’s climate, that the bank is just not ’open’ for business financing. That assumption may prove incorrect and it may well be that your bank has a specific department that specializes in the funding of franchise models.
Even if your bank doesn’t have a specific and dedicated franchise area, they will have funding experts that you should consult with in order to get their feedback on your proposal and your financing plan. Make use of this free expert advice from your bank.
4. Look to your franchisor
Many established franchise organizations have well-developed financing plans already in place. This may come in varying forms. It could be upfront help with financing, a fee-deferral or a long-term note on equipment, etc. Even if a franchisor does not offer a specific financing plan, they will certainly have connections to suitable sources that might be of use to you.
5. Think outside the box
Keep in mind that there are various ways to approach franchise financing. It is not a one-size-fits-all approach. For example, you may be in a jurisdiction where your pension funds can be used as a financing vehicle. This effectively means that you are self-financing your franchise.
Another alternative might be to consider forming a partnership to share initial set-up costs, or have a partner come in as the financial arm of the business.
Sometimes buying an existing franchise rather than a start-up in a new location can provide substantial financing benefits – therefore always consult with the franchisor regarding resale opportunities.
Whatever solution you decide upon, be sure to explore different financing avenues to find the right plan and options to suit your circumstances.
The most important thing to remember when financing a franchise is that you are not alone.
There are many ways in which you can receive advice, support and guidance, usually at no cost throughout the process.
Make sure you avail yourself of this to take the stress out of the prospect of financing a franchise that will enable you to start sooner rather than later.
David Banfield is the President of The Interface Financial Group, a position that he has held for over 20 years. He has been instrumental in starting Interface as a franchise opportunity and building it to its current international status. Prior to his involvement with Interface, he worked extensively in the banking, credit and factoring financial service areas.