Expert money advice

Experts generally regard investing in a franchise as a less risky way of setting up in business than if you were to start your own company independently. Although, as with any business opportunity, there are still risks so investors need to undertake thorough research in order to go into the investment with their eyes wide open.

It is essential that anyone considering investing in a franchise takes appropriate professional advice. The bank’s franchise departments are able to provide general guidance about franchise opportunities.

They will also be able to assist you in carefully assessing whether franchising is the right option for you, what questions you should be asking a franchisor and help to get your new business started.

Banks will require a business plan to consider financial support for your business. Any lender will want you to demonstrate that you understand your chosen market and that you will be able to meet the financial commitment that you are taking on. Most banks can provide a business plan template detailing what information should be included in the planning document. Some franchisors will support you in developing an effective business plan.

The business plan should be punchy and a common mistake is to make it too detailed. Ensure that it contains relevant information and grabs the bank manager’s interest. Presentation of the plan is also important to create a positive impression and you should practise delivery of your plan beforehand so that you come across professionally.

Let the bank manager have a copy of your business plan in advance so they can prepare for the meeting. You should expect your plan to be challenged, so be prepared to confidently answer questions about the operational and financial aspects of your proposal. It is often assumed that a business plan is needed just to secure funding. Whilst this is an important benefit of producing a business plan it can also assist with the management of the business, such as monitoring the ongoing performance against the original benchmarks and identifying areas for development and opportunities. The plan is a working document and should be regularly reviewed and updated as the business evolves.

When looking to finance your franchise business it is best to approach a bank’s franchise department. The specialist franchise banks regularly evaluate franchises and monitor the ongoing performance of franchisees. Better terms are often available from these banks, particularly for wellestablished and proven franchise opportunities. Banks without franchise units tend to treat franchises the same as a new independent start-up business.

The level of finance available from a franchise specialist bank will depend upon the strength of the franchise system as well as your business plan. Typically for well-established franchises the bank will lend up to 70 per cent of the total set-up costs including working capital.

For newer, less proven franchise systems, the amount of finance available may be lower. The bank will probably require security for the loan, which commonly will be a legal charge over a residential property with sufficient equity. Don’t be put off if you haven’t got any security to offer the bank to back your lending. The government-backed Enterprise Finance Guarantee Scheme may be available to those with a strong business proposal but lacking the security that banks usually require. Speak to the bank’s franchise unit to discuss whether you qualify for finance under this scheme. Most franchisees are eligible for this lending scheme if they don’t have adequate security. Advice is also available on other financing options for your business such as asset finance, leasing and debtor finance. The bank manager may take a few days to review your plan and financial requirements. They may need to obtain sanction for the requested funds from the bank’s credit department.

Once the lending has been sanctioned the bank manager should set out in writing the terms of the agreed finance including the costs. If you wish to proceed, then confirm your acceptance of the bank’s terms and the bank manager can prepare the documentation and security arrangements.

You should be aware that it is likely to take several weeks to complete the security requirements before you can draw the agreed finance from the bank, so work closely with the bank manager to ensure that there are no delays in releasing the funds.

It is sensible to have sufficient capital to cover projected expenses for at least six months and preferably longer. Have a contingency reserve fund to fall back on in case the business takes longer to get off the ground that you have anticipated. Some banks like franchising as you are investing in a tried, tested and proven business model with initial training and ongoing support from the franchisor.

Finance is readily available at highly competitive terms from banks with specialist franchise departments. 

A business plan should cover the following:

• Executive summary

• Personal details (contact details, age, marital status, dependents)

• Franchisee’s experience, skills and attributes

• Objectives / mission statement

• Overview of the franchise

• Local market (research, location,

customers, competitors)

• Business operation (premises, IT,

vehicles, equipment)

• Key personnel / management team

• Marketing strategy

• Borrowing requirements

• Capital stake and security

• Personal assets, liabilities, income and

expenditure statement

• Financial projections (cashflow and profit

& loss forecasts)

• Financial assumptions

• Three years’ financial accounts (existing

businesses only)

• SWOT analysis: Strengths, Weaknesses,

Opportunities, Threats

• Exit strategy 

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