Raising Finance is often the biggest hurdle for anyone seeking to start a franchise in the UK and as we all know the big risks are financial.
It is a big step from deciding to start a franchise to actually opening your doors for business. For many, one of the biggest hurdles is approaching the bank for finance.
Of course, there is a lot of work to do before you will be ready to part with any money, you will need to research your chosen franchise, making sure that it is the right one for you and that you are fully aware of what is involved.
You will need to ensure that you can afford to purchase the franchise you are interested in, and set up your new business.
The first step is to establish how much money you can invest in the business - what can you afford to invest? Have you got savings, can your family help?
Banks have learnt that it can be safer to lend to franchisees of well-structured ethical franchise systems. The track record of the franchisor is most important.
For an established franchise, most of the major banks will lend up to 70% of the start up costs, for new franchises the figure will probably be around 50%. With this in mind:
* How much will you be able to borrow? Prepare a full list of your personal expenditure mortgage, hire purchase, household bills, and so on. This will show how much money you will need to take out of the business in order to live.
* What security can you give to back up your loan? You might have a life policy with some value, or have equity in your home.
* Start preparing your business plan - this is a vital document to obtain finance from the bank. Your chosen franchisor will often help you with this.
As part of your business plan, you will need to prepare cash flow forecasts for the first couple of years of the business. Your franchisor will help, but you need to be sure that you understand the figures, what are they based on, how much do you need to turnover in order to break even?
Some banks use the following approach to assess your request for finance…
No comments yet.