Discover how banks can support your franchise plans
Head of Franchising at Lloyds TSB, explains why it is essential for anyone considering investing in a franchise to thoroughly research the market and take appropriate professional advice first
The first step in selecting the right franchise for you is to eliminate all the brands with investment levels outside your budget and those that will not generate the income you require from the business. Be aware that there is no standardisation across the franchise media regarding advertised investment levels, which can be confusing and, in some cases, confusing for potential investors.
What you really want to know is the likely total investment costs including all equipment costs and working capital needed to operate the business. Unfortunately this information is not always immediately transparent.
Experts in banks that specialise in franchising are able to provide impartial guidance about franchise opportunities. If your own bank doesn’t have a franchise department then speak to a bank that does. Your bank manager will require a business plan to set up an account and consider financial support for your business. Any lender will want you to demonstrate that you understand your chosen market and that you will be able to meet the financial commitment you are taking on. Most banks will be able to provide a business plan template detailing the information that should be included in the document. Some franchisors will support you in developing an effective business plan.
The business plan should be punchy and a common mistake is to make it too detailed. Having said this it needs to contain sufficient information for the bank manager to make a decision. Ensure that it grabs the bank manager’s interest. Presentation of the plan is important to create a positive impression and you should practise delivery of your plan beforehand so that you come across professionally. Expect your plan to be challenged and you should be able to confidently answer questions about the operational and financial aspects about it.
It is often assumed that a business plan is needed just to secure funding. While this is an important benefit of producing a business plan, it can also assist with the management of the business such as monitoring the ongoing performance against the original benchmarks and identifying areas for development. The plan is a working document and should be regularly reviewed and updated as the business develops.
When looking to finance your franchise business it is best to approach a franchise specialist bank. The bank’s franchise departments regularly evaluate franchises and monitor the ongoing performance of franchise owners. Preferential terms are often available from these banks, particularly for well established and proven franchise opportunities.
The level of finance available from a franchise specialist bank will depend upon the strength of the franchise system as well as your business plan. Typically for well-established franchises, the bank will lend up to 70 per cent of the total set up costs including working capital. For newer, less proven franchise systems, the amount of finance available may be reduced. The bank will probably require security for the loan, which commonly will be a legal charge over a residential property with sufficient equity.
Don’t be put off if you haven’t got any security to offer the bank. The Government-backed Enterprise Finance Guarantee Scheme may be available for those who have a strong business proposal, but who lack security that the banks usually require. Speak to the bank’s Franchise Unit to discuss whether you qualify for finance under this scheme. Advice is also available on other financing options for your business such as Asset Finance, Leasing and Invoice Finance solutions.
Before you go too far along the line of researching individual franchise investment opportunities, it is prudent to attend one of the Lloyds TSB sponsored educational seminars to understand the benefits and pitfalls of franchise investment. These events are free and held in the evening at venues across the country throughout 2012. Further details and booking information is available at the www.franchise-seminars.biz website.