Funding Your Franchise

Chris Roberts, director of Franchise Finance, offers some expert advice

Before you start searching for franchise finance, you first need to understand the total investment required, including all costs associated with the set-up of the business and the amount required for working capital, fees, VAT, etc.

In order to identify this, you need to prepare a detailed business plan with a full set of financial projections. You can then be clear how much of the total you can contribute and how much you will need to borrow.

Projections and forecast

The profit and loss projections will show the trading activity for the business, sales, costs and how much profit you expect to make. The cash flow forecast will set out the incoming investment from you and any finance, the set-up costs going out, the money coming in and out through the trading activity and VAT.

In simple terms, it’s a forecast of what your bank account will look like at the end of each month.

As it’s part of an application for finance, the business plan needs to include all the information required by the person who’s evaluating your proposal on behalf of the lender.

It should start with an executive summary, which will give a concise overview of the business opportunity and funding requirement. It needs to identify who the owners of the business will be and provide their personal information, including CVs.

You also need to include details of their personal assets (house, investments and savings) and liabilities (mortgages, loans, credit cards, etc).

The lender will want to see that your overall family income is sufficient to cover your overall family/household expenditure, taking into account the money you will earn from your new franchise.

The business plan should include information about the franchisor, the business model, how the franchisor will train and support you and how the products or services will be marketed. It should also set out your business objectives.

Credit score

Keeping your personal credit score in good shape is important. If you’ve not checked it recently, it makes sense to do this and deal promptly with any adverse issues.
It’s also likely that you will be required to provide your bank statements to evidence the fact you operate your bank accounts well and within any agreed borrowing limits.

If you follow these guidelines, you are likely to be able to successfully raise the capital you need.