MARK SCOTT OF NATWEST EXPLAINS THE COST OF BUYING A FRANCHISE AND HOW TO SECURE BANK FUNDING

Starting up a business via the franchise route is becoming more and more popular.  People from a wide variety of backgrounds are attracted to it and their circumstances can vary tremendously, as well as their motivation for doing so. 

There is a range of costs associated with setting up a franchise business, some of which would be incurred if you were setting up your own independent start-up.

KNOWLEDGE
There is one cost that is unique to franchises - the fee a franchisor charges to allow you to operate the business, use its trade mark and tap into the fountain of knowledge your chosen franchisor has. Dependent on the franchise, the training costs may be included in that fee or separated so that the overall breakdown of costs can be identified.

Then you have what would be the typical costs of setting up a business. These include costs for equipment - which can range from hardware and software to licence fees - to catering equipment such as ovens and crockery. If you are going to purchase a mobile business, a van, truck or company car may also be needed and liveried in the name of the franchise.

After that there are the ongoing costs such as rent, rates and wages. This is generally referred to as working capital expenditure. You may also have to consider your own personal drawings when looking at this element.

For an established and proven franchise, NatWest will lend up to 70 per cent of the set up costs. For a new entrant to the sector, this will usually be 50 per cent due to a higher element of risk. For all borrowing requests, NatWest requires a business plan that includes details of the total set up costs and a cash flow plan highlighting how much working capital the business requires. A separate profit and loss statement should also be included.

FACILITIES
These details will determine the nature of the facilities the bank provides. These can range from a loan to assist with the franchise fee and other capital expenditure to asset finance on the equipment or an overdraft facility for any working capital needs. Your contribution as a franchisee can be attributed to any of these areas.

Most franchisors will have a template business plan for their business - after all, they should know how the business works better than anyone.

It is important you fully research the franchises you are interested in. Make sure they are well run and ethical. You also need to determine whether you can work with the franchisor, that existing franchisees are complimentary about their franchisor and that you will enjoy the challenge, as starting up any business, franchised or not, is hard work.

Mark Scott is director of franchise development at NatWest.

For more information visit www.natwest.com/franchise.