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Carl Reader on planning your finances before investing in a franchise
All new business owners have to ensure they have their finances in order before setting out on a new venture. This is perhaps more evident in franchising, where there is an upfront fee to represent the training,
Before investing in a franchise, it is important to understand your own financial position. I always recommend that prospective franchisees establish their net worth position, by listing all assets and liabilities. This summary, known as a personal balance sheet, might look like figure one.
Once a personal balance sheet has been prepared, it is then possible to extract the items that can identify amounts (such as cash and shares in publicly listed companies), which can be invested
The headline figure used to compare franchises is often the initial franchise fee,
When applying for funding from a bank, you will be required to produce a business plan, demonstrating what the bank is lending the money for. An essential part of any business plan used for funding is a breakdown of the initial costs of running the franchise. The banks are looking to ensure they are lending the correct amount, so the business has enough to be a success and ultimately service the debt, whilst also not lending more than is necessary. Your franchisor should provide you with a full breakdown of the total investment to help support your funding application. This breakdown can also be very valuable for ensuring you claim as much tax relief as possible in year one.
It is also very beneficial to include your personal balance sheet (as described earlier) within the business plan. This will allow you to demonstrate to the bank that not only have you taken the effort to consider your personal finances befoe
Carl Reader is a partner at Dennis & Turnbull Chartered Accountants
& Strategic Advisors, based in Swindon.
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