Funding is a key part of any business: it is particularly important for franchise businesses where the franchisee will have to have the resources in order to pay the franchise fee and any other purchase costs at the outset.
Banks and other financial institutions find franchise businesses particularly appealing. These businesses are often consistently run and are given oversight by a wider group. These factors mean that franchise businesses are a better bet. Typically speaking, 80% of new businesses fail within the first five years and 80% of franchise businesses succeed. Armed with this knowledge, banks are much more inclined to provide financing for franchises than they are to startup businesses.
In following guidance from banks & best practices for finding funding, this article will show you how to get financing for a franchise. Let’s start by looking at what one major lender has said they want to see in their recent guidance:
HSBC Guidance for those looking for Franchise Opportunities
HSBC have recently issued their thoughts and guidance for people that are looking to buy a franchise and become a franchisee.
Here are some of the factors that they think are important when it comes to financing for franchisees:
Proven track record – The better the track record of success that a franchise business has, the better bet it is for a bank when providing funding to a franchisee. Ideally, you should look for a franchisor that has been in business for at least two to three years and has a robust and growing network.
The Belvoir Group have been in business since 1995 and have over 400 offices Across 6 different estates and letting brands. We have a large number of franchisees that have gained funding to start their franchise journey and that have also gone on to acquire additional franchises .
Reputation – Does the franchise have a strong and credible reputation in the market?
Belvoir Group provides a credible name that a large number of lenders are interested in arranging lending for. We have direct access to a number of banks & franchise financing lenders through our credibility in the market. In addition, as founder members of the British Franchise Association, we have helped to set and shape the standards by which franchise businesses are run.
Franchise fees – It is important for you to understand what franchise fees are payable on an ongoing basis.
Franchise agreement – It is important that you understand the terms of the franchise agreement and how long both sides are bound by it.
Other franchisees – In order to determine whether you are buying an asset, you can ask to speak to other franchisees within the organisation. This will help to give you an idea of the culture of the business as well as the experience of other people who have taken the same journey. If you find other franchises to be enthusiastic, this can be a good sign.
For those looking to purchase a franchise with Belvoir Group, we will introduce you to existing franchisees before you purchase a franchise in order that you can get a range of perspectives. We trust that their experience is a positive one but encourage you to form your own opinion by speaking to other franchisees in the network.
Your lifestyle – It is important to consider how a business will fit with your lifestyle and family arrangements before committing. whilst the Belvoir group does not require any previous experience in his estate agency or in lettings, this will form a significant part of your life going forward and so an interest in and enthusiasm for the world of property is to be encouraged.
Writing a Business Plan to Support a Franchise Funding Application: What Banks Are Looking For
There are a number of things to consider when applying for funding for any new business including a franchise business. One of the foundational documents that any bank will want you to have, whether you require funding or not, is a business plan. A good business plan will maximise your franchise financing options.
The business plan will form the cornerstone of any funding application as they will enable the bank to get clear on what you are trying to achieve and to see whether you are clear about your goals. Banks don’t want to waffle and they don’t want you to base your plan on optimistic assumptions. I want to get an accurate reflection of whether you are a good bet and to see how much you have thought about the realities of running a business.
It is important to outline any strengths, weaknesses, opportunities and threats within the market including your own strengths and weaknesses as well as those of any competitors.
Although the banks don’t want you to waffle, the more substantial the information provided, the better the business plan will be. A well-researched plan demonstrates your commitment to the business and your understanding of the business environment .
For those looking to start a franchise business using Belvoir Group, our team will help you to develop a business plan and will give you guidance on the market from our experience with other agents in our network as well as our knowledge of the competitive environment.
Investing in a ‘Going Concern’ or Existing Franchise
There are a huge number of advantages to buying an established franchise from an existing franchisee. In our business we call these resales.
lenders love people that are buying an existing business because it has a track record and may well be generating both cash flow and profit for stop
If you would like to purchase a resale or existing franchise, here are a few things to consider or to ask the franchisor:
Reason for sale – ask why the business is for sale, particularly if it hasn’t been operating for very long. There are a number of reasons why a business might be up for sale that are perfectly okay including the intended retirement of the franchisee. Understanding the reason why the business is up for sale can give you a clue as to whether there are any red flags, however. With Belvoir Group, our resales team will be able to provide you with detailed information on franchise resales although you will have to sign a non-disclosure agreement in order to ensure that sensitive information does not get passed on to anyone else.
How was the business valued? The business valuation methodology is the thinking behind why a business is valued as it is. Understanding this will give you an understanding as to whether the valuation is accurate, whether you should negotiate further and what your costs will be. Once you understand the value of the business you are buying, you can weigh this up against other options such as starting a new franchise or even starting your own business. It is usually the case that purchasing an existing business will give you an enhanced chance of success and get you to where you want to go much more quickly. This will only be the case if the business is valued correctly.
Does the franchisor need to approve the purchase? It may be a stipulation of the franchise agreement that the franchisor needs to approve the purchase. you will need to check whether they are comfortable with this and whether they are available.
What contribution will you need to make towards the franchise or and to marketing? It is likely that you will have a franchise fee to pay on an ongoing basis in order that the franchise can provide you with the services they have promised. In addition, you may be asked to contribute towards marketing costs. It is worth understanding what these contributions are and whether they are all in one fee or whether they come as two separate fees.
How is the sale being structured? Understanding whether you are purchasing the assets of the business or shares in the business will be important. There are legal and accounting implications to these different options and so it is important to understand these and to see professional advice before committing to a sale.
The idea above will give you a greater understanding of the going concern you are purchasing and will be extremely useful to lenders who will want to be confident in the business before lending you any money.
Financing a Belvoir Group Franchise
Belvoir Group are keen to help their franchisees find funding. We are interested in helping those who are new to the business find the resources to purchase a franchise. We have also developed an Acquisitions Programme in order to help our existing franchisees fund their ambitions and to expand their businesses by purchasing other estate and lettings businesses. We have a sophisticated approach to franchise financing & a team who can help you.
Potential franchisees and those looking to start up their own business will require some of their own capital and will probably need to find access to further lending. The Belvoir Group’s model is based around a ‘hot start’: this involves a new franchisee purchasing a business that is already running. Because it is a ‘going concern’ (already running), it has a value and the potential franchisee will need to be able to pay for this.
Existing franchises have a number of options from expanding into new territories and opening new offices to purchasing competitors within their existing territory in order to add value to their own business. With the latter, it’s particularly appealing to franchisees that are looking to increase their lettings portfolio: by buying a letting business or a lettings portfolio, a franchisee can effectively buy an income.
If you are interested in becoming a franchisee & would like to learn more about what offers there are for financing or through our Acquisitions Programme, you can learn more on our financing page or book a discovery session in order to ask any questions you may have.
If you enjoyed reading this article, you might also like: 6 Tips for Starting a Property Franchise
