Every business whether an international PLC, a multi-unit operation or a single operator business requires funding.  This applies just as much to a franchise resale acquisition, all require that lifeblood of any business – adequate funding.  It may be you are able to acquire the business from personal or family money removing the need to go to a bank but for most resale transactions this is not the case.

Whilst there are various avenues open to obtain funds, the usual route is to opt for a loan from one of the main banks that specialise in and actively support franchising. It is here however than many plans for owning a business can come to a halt due to poor preparation.  The key to successful funding is a planned structured approach. Those of you who attend bfa accredited franchise exhibitions will have had the opportunity to participate in the Franchise Finance Business Planning Clinic providing an insight into the realms of business plans and the secrets of success.

When approaching a bank there are some points to bear in mind if you wish to be successful in your application.  Firstly don’t leave it too late to make an approach.  An initial enquiry will register you on the banks radar and will provide some basis information about the process involved and their individual requirements.  Secondly don’t just pop into your local branch of the major high street banks.  As with much in the franchise sector you will require specialist advice from a franchise specialist so in each case make contact with the franchise units of the banks.  The best place to find out their contact details is via the British Franchise Association web site www.thebfa.org. The main banks involved in funding for franchises are: Lloyds Banking Group, HSBC and RBS/NatWest though MetroBank are newly entering the market.

The next point to consider is that any borrowing will require some form of security.  This may be provided by the bank taking a charge over your house or other property or, if you do not have any available equity in your property or do not own a property, via the government’s Enterprise Finance Guarantee Scheme (EFG).  The EFG was put in place to provide funding for enterprises where there was not adequate security available to establish a business.  The EFG scheme can be used for both new starts and resales.

Whilst the EFG scheme sounds like ‘manna from heaven’ the basic requirement before being able to secure funding via this scheme is to have your entire business plan and projections approved by one of the above banks.  They will put your application forward for approval under the scheme.

The core element of any funding proposal is the Business Plan.  This is not just a cashflow projection; it is a comprehensive summary of the whole business.

A successful business plan will include a cashflow and profit forecast for the business and this will probably cover at least three years trading.  These must be backed by solid logic so there is no point taking a business generating a small profit and expecting a bank to accept the business will, for example, double in size within the first year – without some concrete evidence of how this will be done.

The business plan must also cover the marketing and sales activity that will be carried out and how you see the current shortcomings of the business being overcome by your activity.  A SWOT analysis is the best way to tackle this. Finally your personal background CV and skill-set must be included as well as a detailed statement of your personal finances – a personal profit & loss account. All of these elements together comprise your business plan and funding application.  They will of course also form the base upon which to monitor the growth of your future business.

Avoid pitfalls, take your time.

Quite a lot of our time at Franchise Resales is spent in one to one discussions with franchisees who are seeking advice about optimising the value of their businesses and planning their exit from their particular franchised network.  The vast majority of these are seeking to realise the value of their investment in their franchise to be able to retire or occasionally a franchisee will be looking to sell to move on and acquire an alternate franchise.

Sometimes however the call comes from a franchisee who just doesn’t like the franchise they have bought or has been offered an employed position by an external company and who wishes to return to that world.  In each of these situations it is very difficult to be able to offer a cost efficient solution to the franchisee concerned.  This is because the businesses involved have usually either hardly got off the ground or have slipped in terms of financial performance as the owners focus has moved away from developing the franchise to pursue other interests.

In each case, a discussion with the franchisee who is wishing to sell, usually indicates that they had not spent very much time investigating the world of franchising.  They may have not understood what it means to be a franchisee and had not established whether the particular brand under investigation or franchise life in general actually suited them.  Most franchisors that are members of the British Franchise Association (bfa) adhere to the bfa code of ethical conduct and spend considerable time in discussion with franchisees prior to allowing them to sign up and join their particular franchised network.  They can however only do so much.  It is up to a franchisee who is looking for a business to apply a bit of due diligence to their investigations themselves.

Owning a franchise is not like having a job – there is usually very little or no income available at the end of the month if sales are not generated.  The success of a franchisees business depends almost entirely on the effort and energy employed by that franchisee.  It may be that some leads and enquiries are generated through the franchisors central operation but usually franchisees are expected to generate their own sales turnover.  So one of the skills or personality traits that every successful franchisee has to develop is the ability to get on with and interact with other people in a business context.  Some of the best sales people are likeable individuals and most folk want to do business with people they like so this element of a potential franchisees skill set is crucial.

One place to find out what it is like to be a franchisee is by attending one of the “Real Franchise Stories” panel discussions at the franchise exhibitions held in Manchester (June) , London (September & March)  and Birmingham (October & February).  Here you will be able to ask questions of current franchisees who have made their time available to help those considering buying into a franchise, hearing how it was and is for them being franchisees.

There is also the situation where a franchisee doesn’t like the ‘day job’ of the business they have entered. It is difficult to be a motivated and enthusiastic driver of a business that you just don’t like doing.  Sometimes this has been because there wasn’t enough research carried out or discussions held with existing franchisees before the commitment to join was made.  Our advice in Franchise Resales is always to take that extra bit of time and speak to as many existing franchisees as possible within the brand you are investigating before making a decision to join.

A good way of seeing whether a particular business is for you is to look at a franchise resale – to buy an existing franchise from its current owner rather than stepping into the unknown with a greenfield location.  A franchise resale has clients and business from day one; it has everything in place for a new owner to take over and develop further and most importantly the brand is already known in the local marketplace. In other words you know what you are getting in to; the evidence is there in terms of trading history and business performance.
Franchise resales are available in most business sectors and to see a list of those currently available, click on our Buy a Franchise tab because as indicated at the start of this article many successful franchisees are now planning retirement so there is a growing number of franchise resales opportunities coming to market.