One of the main reasons clients tell us that they wish to purchase a franchise is their belief that this type of business opportunity in essence gives them a head start in owning and successfully running a business… and we couldn’t agree more. But that life decision, and a big one at that, comes with the challenge of how to pay for, or finance a franchise. A franchising loan properly structured can make or break your business opportunity.
There really are 4 key categories or areas that you should focus on in both selecting and financing your franchise. They are the actual type of business you wish to be associated with… ie big, small, service based, asset based, hospitality based, etc. After that comes the all important analysis part of your decision. what we could call ‘ running the numbers.
Those numbers must then be translated into an effective financing plan to finance a franchise. i.e. getting a franchising loan that makes sense from a viewpoint of debt load, your own equity, and the right rates, term and structure that make business and financial sense, without putting you at risk.
Finally the 4th major consideration topic is simply ensuring you have weighed the pros and cons of owning an independent business under the franchise mode. The reality is though that you are in good company, as thousands have gone before you successfully, and a huge part of the Canadian economy (you’d be surprised how much) relies on the franchising industry for its products and services. And God knows the economy needs all the help it can get these days.
We tell clients that when they look to purchase a franchise they need to do a total… lets call it ‘ sanity check’ on the numbers. Key questions need to be answered, including whether the investment will provide you with the proper return on your own investment. That’s an important concept when you think of it, and easily overlooked by franchisees that don’t have a strong financial background.
In essence you are simply asking yourself if the amount of money that you have to put into the business personally is going to be rewarded over time with a return. That makes total sense, don’t you think? In today’s Canadian franchising environment business owners can be expected to put anywhere from 10- 50% into their business. That amount varies with the size and type of franchise that you purchase.
In assessing your financial needs you need to take into account funds you need to open and purchase the business, as well as what type of working capital you need to maintain and grow the business – quite frankly that’s the same challenge that any business purchaser faces, whether or not its a franchise .
That ‘ pros and cons’ analysis we spoke of is also critical at this point in your decision – you need to evaluate the cost of buying and financing a franchise against using that capital or debt to start a business . However, the concept of proven business models and branding is key, so that makes the assistance you get when you want to finance a franchise easier.
In Canada franchises are financed via one or two specialty finance firms, which tend to focus on the major players and names in the industry. Thousands of others are financed under the auspices of the government BIL /CSBF program. The attractiveness here relates to great terms, rates, structures, low personal guarantees, and flexible repayments.
Want help on making one of the most important financial decisions in your business life? Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in making the right decision and facilitating a franchising loan that works… for you !