YOU ARE BUYING A FRANCHISE AND ARE LOOKING FOR FINANCING!
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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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Financing a new franchise. Simple? Difficult? Impossible? Our answer would be 'simple'... never, not really. Difficult... we don't think so, you be the judge. Impossible? With the right information and assistance, absolutely not.
So what in fact does a Canadian franchisee need to know about funding a franchise business in the Canadian marketplace? A good start is with some of the basics - we're going to assume you have a general knowledge of what franchising is, with an emphasis on the pros and cons of purchasing what is hopefully a proven business model in your chosen industry vertical. That vertical might be QSR (Quick Service Restaurants) (boy are there a lot of those!) service-oriented businesses, the growing healthcare industry... and on it goes.
In Canada (and we're assuming south of the border also!) your personal financial situation, as well as your related experience, play a key role in the overall financial plan you will undertake to successfully complete a business financing.
A great start is to prepare a personal net worth statement; simply speaking it’s a basic form that shows what you have, and what you owe. The difference is known as your personal net worth. Hopefully what you have is more than what you owe; otherwise, your chances of financing success are somewhat slim, if not non-existent.
A business plan prepared by yourself or an advisor will hopefully show you have thought out your cash flows and profit potential. Everyone wants to be a ' winner ' in franchising, that’s understood, and it seems only common sense that the more successful a franchising brand you attach yourself to will translate into financial success.
Don't forget also the royalty aspect of your planning. Royalty fees when you purchase a franchise typically tend to be in the 6-8% range, and those fees should be carefully factored into your overall profit and cash flow scenario.
The old adage that the 3 most important things in real estate are location, location, and location! If your business is dependent on retail/consumer traffic, that’s important.
Does your lease and location factor into your financing? Yes, it does, as it’s critical that your lease has a term that appropriately matches the term of your franchising loan. Simply speaking, don't expect a 7 term loan if your premises lease only has 3 years left and is not renewable in your favour.
The amount that you are required to invest as your portion of the business capitalization varies. It depends on a couple of basic factors. Those factors are as follows:
1. The minimum amount that might be required from the lenders perspective
2. The minimum amount that might be required your franchisor's perspective. This is an especially important number because it is usually drawn from their experience as to what amount of capital units in their chain require to be successful.
3. A third factor is the amount of risk you personally are willing to take in your new franchise venture. In this case, 'capital' is what we tell clients could be a double-edged sword. For instance, you could put up 100% of the funds yourself. In that case, you have little debt risk but have a lower return on investment. Alternatively borrowing without a decent equity position puts you at the mercy of your franchise lender when things go wrong, as they sometimes do. And need we mention that every business, franchise or otherwise needs a working capital cushion.
It may seem the wrong way of looking at it, but as a Canadian prospective franchisee you might well want to take some time to understand why franchisees fail, and what you need to know to buy and successfully finance a new franchise in Canada.
The importance of a trusted, respected and experienced Canadian business financing advisor can't be underestimated. Whether you are buying a new unit in the system or purchasing a resale from an existing franchisee understand your reward and risk.
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