When raising finance for a franchise, approach the right bank with the right information, Mark Scott, director of franchise development at NatWest, says
Starting a business by way of a franchise is becoming more popular. However, it’s one of the most important decisions you’ll make and you need to be honest with yourself about whether you’re cut out to be an entrepreneur.
Take a critical look at your strengths and weaknesses. Do you have the capacity, temperament and skills to run your own business?
Make sure you have the full support of your family and don’t underestimate the additional responsibilities and demands on your time. Ensure you have sufficient capital - you’ll need at least 30 per cent of the start-up costs (50 per cent for a new franchise).
Obtain a full list of existing franchisees. Don’t just speak to those suggested by the franchisor, as they may be the only ones that are successful. Visit where possible, find out how their businesses are performing and what support is provided.
How well known is the franchise and its service/product? A good reputation is a bonus.
Examine costs closely, in particular the franchise fee and monthly management fee, and whether they are value for money. Will the margins be sufficient to support the business after payment of regular fees to the franchisor?
Will the training provided enable you to run the business successfully? Who are your competitors?
Seek professional advice from an accountant about income and profit projections and from a solicitor about the legal agreement. Both should have a good understanding of franchising and preferably be affiliated to the British Franchise Association.
When raising finance for a franchise, in the majority of cases you should not have too much difficulty, provided you have a sound credit history and a robust business plan.
Approach a bank with a dedicated franchise department, as it will have a good knowledge of the franchise industry, what your business plan should include and how the franchise will perform in the early days.
For established, successful franchises you will be able to raise a greater level of finance for your start-up costs and working capital requirements. For example, this could be up to 70 per cent of the total finance required. For new franchises, the figure will be 50 per cent.
This compares well up against raising finance for an independent start-up that does not have a brand and a proven model behind it.