To recover from the lockdown successfully, franchises will need to take full advantage of all the support offered to businesses in various forms
Franchisees and franchisors will need to be sure they have enough funds in the bank to weather any further storms, plus, be well-positioned to develop new promotions, ramp-up marketing, increase communication and therefore, drive sales.
The first question to ask is: have you taken all the support you are entitled to?
Firstly, it’s worth checking if you can get any payment holidays or deferments on any existing loans or finance. This is usually a quick process which can buy you time and can free-up cash flow to focus on positive, proactive marketing activities until business is back on track.
Secondly and related to this, is to check if you could benefit from any of the new schemes that have been introduced as well as the more established funding solutions. This may be in the form of a Bounce Back loan, a Coronavirus Business Interruption Loan Scheme (CBILS), asset finance or full use of bank and other facilities.
Remember the special deals available currently won’t be around forever, so make that decision now on whether you will need equipment or new vehicles in the near future? If so, the offers currently available may be worth considering? Taking advantage of the preferable rates of a Bounce Back loan now to purchase new equipment, for example, doesn’t mean you won’t be able to leverage additional funding later by perhaps refinancing on asset finance, therefore, releasing the Bounce Back funds back to you as additional working capital just when you may need it.
Here it’s important to take professional advice. A good and trusted advisor will consider all your needs and supply information about the best options for your franchise. In some cases, your best option may be available from an entirely different source and it’s vital that you are made aware of all the options. This is why it’s preferable to use a fully independent source whose focus is on you as a long-term partner. In this way, you can be confident that you will have all the information needed to maximise the potential from the investment funds available, even if they weren’t strictly necessary for you to survive lockdown.
Thirdly, look into restructuring any existing finance, as with the current interest rates and special deals available, this could result in savings. For example: in some circumstances it is advantageous to pay off a CIBILS loan or any other type of loan or asset finance facility through the Bounce Back scheme because the rates and terms are very attractive.
However, when paying off any Lease or Hire Purchase agreements for vehicles or equipment, do make sure you are fully aware of any early repayment or settlement issues. Sometimes settling a lease on a vehicle early may result in costly title transfer fees to ensure you can actually own the vehicle once the lease is paid off. So do read the small print!
There aren’t many quick fixes but a hastily taken wrong decision can have a quick outcome. Therefore, a trusted, independent financial advisor will be able to work out the best option for you as it will usually depend on the type of loan you have. With some types of finance agreements like Lease and Hire Purchase, you may not save any interest payable as capital, plus, interest on the whole term of the loan is often payable, even if settled early. In this situation, precalculated interest needs to be taken into account if it’s included in a settlement figure, to avoid paying interest on interest.
On the other hand, where you are paying interest on a ‘daily’ charged loan or overdraft, which is usually the case with bank facilities, paying off early could be beneficial. In these cases, you could clear loans and save on current monthly outgoings for 12 months.
Fourthly, consider where your franchise business is going. Think ahead, how much has your business needed to change and what further changes will be required in the short and long term? What will it look like going forwards? Will you need to invest in more technology to future proof your proposition? Perhaps funding an acquisition could increase efficiencies, improve economies of scale and build a stronger, leaner more resilient business. Don’t forget there are also research and development tax relief benefits offered to organisations coming up with suitable new solutions which meet predefined criteria.
Lastly, an independent advisor will also be able to let you know about any other options out there. Having an advisor with a long-term view can help you move your business onwards and upward positively.
Phil Archer, QFP, is an asset finance manager d&t.