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We don't appear to be quite out of the economic downturn, but regardless of when the UK does return to growth, one of the most important issues facing franchisees will be the question of how to manage their cash flow. NatWest research reveals that
When starting up a franchise it is very important that your finances are structured in the right way - what often causes businesses to fail is not their profitability, but their cash flow. With an established franchise you do have an advantage in that the business format is already proven and there is a network of people around you facing the same issues and, of course, you also have the support of the franchisor.
The good news is that there is plenty of advice available and the main banks involved in the franchise sector remain supportive. There is also government support available in the form of the Enterprise Guarantee Scheme, which can be used when structuring your finances; a loan under the scheme can be used for working capital thereby providing a cash flow cushion while you are establishing your franchise. Your bank will be able to advise you about the scheme and how you may be able to take advantage.
Having got your finances structured correctly at the outset doesn't mean that you can relax - you need to keep a close eye on your cash flow - some practical tips on how to keep your finances healthy include:
Cash is king: Keep control of your cash flow by having the right management information and systems in place. They'll allow you to act on warning signs before they become a problem.
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Get paid: You must set clear terms of business and collect debts promptly. If you're worried about being paid, consider stage payments or even cash on delivery to reduce your risk of bad debts. You could also consider offering an incentive for early payment.
Look at your costs: If sales fall, avoid taking on unprofitable business. Cutting your costs can provide you with the scope to reduce prices. If you take on big orders, you could be overlooking your smaller more profitable customers.
Spread the risk: Don't just rely on one or two customers. In an economic downturn, all it takes is for one of your customers to move to a cheaper supplier and your business is no longer viable.
Take advice: There is plenty of support available and as a
Finally, if you feel that you have not received a fair hearing about your financial requirements for your franchise, you could take advantage of the hotline services that are now available. These scrutinise instances where borrowing requests have been declined and ensure that every avenue has been looked into in the search for a responsible lending solution that meets the businesses' needs.