Fit for finance

Cathryn Hayes on how to make sure your franchise finance application is successful.

Choosing the right type of finance is important. For those starting up a business, the prospect of compiling a business plan can be daunting. It should not, however, be an intimidating process and a good business plan is a route map to future success, as well as helping to secure finance and support. Your franchisor will probably help with this, but you need to ensure that you understand the figures and ‘own’ the business plan.

A good business plan will contain the following:
• Summary of business description – details of the franchise being purchased and the financial needs.
• Market analysis and product/service – research and identify local competition and assess what the likely demand of the product/service will be in the specific territory.
• Market strategy – outline intentions for marketing the product/service and how the sales figures shown in the projections will be generated.
• Management plan – include details of the type of business (eg sole trader, limited company) and CVs of key personnel. Set out the structure and key skills of the management team and staff.
• Financial data – at least two years’ projected figures are required, including a balance sheet, cashflow and profit and loss statement.
• SWOT analysis, that is, a one-page outline of Strengths, Weaknesses, Opportunities and Threats.

To summarise, here are the fundamental rules for writing a plan:

Do:
• Clarify the purpose of your plan before you write it
• Focus on the key information the reader will want
• Highlight future plans as well as describing the current situation
• Be realistic

Don’t:
• Waffle or include unnecessary detail
• Base your plan on over-optimistic assumptions
• Ignore competitive threats and weaknesses

The more detailed information that you can gather, the better the business plan will be. When requesting finance the bank will look to assess your proposal using all of the areas covered above. A wellresearched and written plan will show the bank that you are committed and understand your chosen franchise, meaning that a request for finance is likely to be looked at more favourably.

Potential franchisees are likely to be considered more favourably for finance
than a conventional start-up business. For an established franchise, most of the major banks will lend up to 70 per cent of the start-up costs, for new franchises the figure will be 50 per cent.

It is essential to consider the financial implications carefully before buying a
franchise. You are entering into a long-term commitment and need to get the finance right at the outset. Don’t do it on a shoestring, but don’t borrow more than you can afford to repay. Make sure you talk to your bank; they can help you to develop a financial package suitable for your specific needs, using all of the options available. They will also be able to offer you advice and guidance to help you develop your business both at the outset and ongoing.

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