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.