Financing a franchise is one of the most important things to consider before you even sign the contract.
Preparing to Finance Your Franchise
You will obviously need to be financially prepared to invest in a franchise; you must ensure you are aware of all your personal ins and outgoings because the lenders will want to know everything. If your finances are tight, the lenders may be more hesitant and you should be aware that no lender would lend you 100% of the funds required, you would have to invest some of your own money. Lenders will also want to see a strong business plan.
Once you have determined it is a good time to invest in a franchise, you will need to gather all your financial information together, tax returns, account balances, debts, etc. Lenders will want to see documentation. Banks are more likely to invest in a well-established franchise with an established corporate image.
Finance Arranged by the Franchisor
You will find that nearly all franchisers offer some kind of financing but the amount they are willing to offer varies from one franchiser to another. You should also be aware that finance from the franchiser does not necessarily make it an easier option; they will be just as thorough with your documentation and personal cash flow as any lender. Along with the franchiser your other financing options include banks, friends and family.
Important Considerations before Investing
Before investing you should have considered the following:
- How much do I want to invest? How much can I personally invest?
- Where can I obtain the finance if it is needed?
- Do I have enough to live on whist I start the franchise?
- Can I afford to lose money?
Bank loans should be thoroughly researched, for example is the loan fixed rate? Any loans from friends or family should be accepted in the knowledge that you can repay them. The last thing you want to do is find yourself in debt due to unforeseen circumstances due to lack of preparation and knowledge. Be aware of all cash flow in and out of your personal account; be aware of all bank charges from loans, franchiser charges, business inflow and outflow.
Another option to consider if you feel it is the wrong time to invest or your personal finance is not strong, is to buy a franchise from a retiring owner. This way the profits are already flowing and the cash flow is well established. It would be even more beneficial if you were to become an employee and be trained before becoming the manager so you can carry on exactly where the previous owner left.
