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Thinking of Buying a Franchise? What the Bank Manager Will Need to Know

By: Noel Guilford
Submitted: 2007-07-17 11:32:27
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The cost of taking up a franchise can vary dramatically. It will include the initial franchise fee, then possibly training, premises, shopfitting, equipment, vehicles, stock, working capital and marketing costs. It will also vary according to the nature of the business. Nevertheless banks are keen to lend to franchisees who have done their homework and can present a sound business case.

Having evaluated a number of potential franchises and chosen the one for you, you will need to determine how much of your own money you can, or will need to put up, and how much realistically you can borrow. Before approaching the bank there is a lot of preparation you can do to increase the chance they say ‘yes’.

The first stage is to prepare detailed financial projections on a monthly basis for the franchise business for at least three years. Use the franchisor to help you. By now they will invested a significant amount in finding and selecting you so they will be committed to helping you raise finance. They will have provided illustrative projections to you in the prospectus and will have real data from either their pilot scheme or other franchisees on which you can base your assumptions. The financial projections should show projected profits, cash flows and security available.

You can now take a view of the amount you may be able to borrow. For an established franchise with a good track record you may be able to borrow up to 70 per cent of your start-up costs. For a newer franchise this will be more like 50-60 percent.

Next prepare your business plan; again much of the information this will contain such as details of the market size, competitors and the business operations will come from the franchisor. But it is your plan so make sure it is about your business, your management team, your financial controls and your locality. Keep it clear and concise and remember that any money you borrow the bank will want back – so make sure you tell them how and when they will get it. The main source of repayment will be from the cash generated by the business, so be very realistic about overheads, payments to yourself, VAT and taxes and remember to include bank interest in your projections.

You are almost ready to visit your selected banks, we recommend at least three, but before you do there are a couple more important steps. Use your franchisor to make introductions through their franchise bank manager to the lending managers in your area who have franchise experience – that way you are not going in ‘cold’ but with a recommendation. Secondly make sure you have a copy of the franchise operations manual and your franchise agreement for the bank to review and, thirdly, send in your business plan and financial projections a few days ahead of your appointment for the bank manager to review.

A couple of days before your appointment you should prepare your presentation to the bank and synopsis of the business; this should not just repeat what is in the business plan but should be a 10-15 minutes presentation communicating your passion, enthusiasm and knowledge of the business and why you will make it a success. Rehearse this presentation several times in front of your spouse, partner, or friends and encourage their constructive feedback; after all the effort you have put in up to now this could be your 15 minutes of fame that changes your life!

Noel Guilford is managing partner of Chester based Guilford Consulting which specializes in providing strategic and corporate finance advice to growing businesses. For further information call Noel Guilford on 01244 660866 or email noel@guilfordconsulting.co.uk. Also visit www.guilfordconsulting.co.uk

Article source: Expert Articles

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