Planning to Succeed
Inarguably the most important document when applying for finance from a bank is the business plan.
Most business people with an idea could tell you with enthusiasm, when asked, their plans to get rich quick and how they are going to go about it. Putting those plans down in a comprehensive and comprehendible business plan that a bank will accept however, is a wholly different matter.
In franchising, banks are undeniably crucial to enable businesses to expand, recruit and develop their products. In a society built on credit, it is only natural that (almost) every great development begins at the bank.
Chris Roberts of Franchise Finance, one of the UK’s leading businesses specialising in the creation and presentation of business plans to banks, believes that drafting an acceptable business plan is now as much about the individual’s knowledge of the business as the concept. He says: “The key to success in raising finance lies in the Business Plan. This document is not just a plan for the business; it is the application for raising finance. It must satisfactorily cover all the points the bank needs to see in order to make a positive decision.
The franchise owner will need to understand and demonstrate what the business does, what the objectives are and how they are going to achieve them. This step-by-step process will involve a review of the market, the competition and the marketing/sales proposals. Everything then needs to be laid out in the financial projections so that it is clear how much money is required (including working capital), how much needs to be borrowed and how and when repayment will be made. Other things to cover are whether the bank is likely to want any security and the borrowers own personal financial position.”
For franchises themselves, obtaining finance for new investors or for the development of their own business is crucial and so the services of organisations such as Franchise Finance have become somewhat mandatory.
Richard Holden, Head of Manufacturing for Key Markets for Lloyds Bank, believes that presenting education for franchisors and prospective investors is vitally important and is therefore at the forefront of Lloyds’ operational practices. “Lloyds Bank has demonstrated its commitment to ethical franchising over many years,” explains Richard. “Education for would be franchise owners and franchisors is an essential component of our commitment. We run a series of seminars throughout the year to help investors make an informed choice about franchising and to help them understand the pitfalls as well as the advantages. Our customers are supported from their initial research through to exiting the business by an experienced team committed to helping them succeed and prosper through the lifecycle of our customer’s business so they can unlock its full potential.”
This dedication to ensuring franchise owners and franchisors have all the information before submitting a business plan or proceeding with investment means the franchise industry is heading more towards a higher level of efficiency and better cost-effectiveness.
Head of Franchising at HSBC, Cathryn Hayes, believes that when putting together a business plan and applying for finance, the competence and experience of the individual is more important than ever. She adds: “CV’s of key personnel are very important and should form part of a comprehensive and well thought out business plan. Whilst previous experience in the particular business sector may not be essential, there are certain skills and capabilities that are vital to run a successful franchise. The franchisor should also be keen to view the CV to confirm the suitability of the applicant to run the business.”Submitting a business plan on behalf of a new investor is often a collaborative effort in franchising between the franchisor and a new franchise owner. Cathryn continues: “At HSBC, we consider every proposal on an individual basis. Economic returns or security are a secondary consideration to a viable business proposition – we are looking to build long term, successful relationships with our customers.”
Mark Scott, Franchise Development Team Director for NatWest concurs with the idea that individual competence and records is becoming an even more important factor in securing funding. “As the UK’s largest lender to SME’s we are committed to supporting our customers in achieving their ambitions,” he explains. “We are committed to getting closer to our customers than ever to ensure our dedicated franchise managers know the sector and the challenges and opportunities faced by businesses. As well as working closely with industry bodies including the bfa and being accredited by Chartered Banker, our managers spend at least two days a year with businesses to get to know how they work and how best to support them as part of our Working with You Programme.
“Franchisees need to provide us with a business plan and some information about themselves. Once received, this is assessed and a decision made and conveyed to the franchisee. Any conditions are then completed before the franchisee can draw on the facilities and start their franchise business.”
In addition to personal evaluation, the quality of the business plan has to be sufficient to secure interest from the bank and prove that the concept is one that will pay off. Chris Roberts adds: “For all but the smallest of borrowings, they want to see a detailed business plan with a full set of projections. They will want to see some evidence that the assumptions are realistic and that monthly repayments can still be met, even if actual sales are lower than expected and expenses higher i.e. they will sensitise the projections and probably look at the breakeven figure to see if it is considered realistic.”
Franchise Finance is a business right at the forefront of business plan design and presentation. It has helped a huge number of franchise businesses obtain funding for expansion and it continues to be of utmost importance within the sector. Chris concludes: “We have a proven success rate of over 95 per cent in raising finance. We have a detailed knowledge of the way underwriters work and understand how banks and finance companies make lending decisions. We are experts in taking the individual circumstances of a franchisee and structuring a finance proposal that provides the lender with everything they need to say: ‘Yes’. We personally know the directors and franchise teams of all the bfa member banks and have and use a database of bank managers throughout the UK who understand franchising and are prepared to work hard on behalf of our clients. In short we turn an often-difficult process into a much easier and sometimes even cheaper one, thanks to our overall expertise.”
As franchising continues to grow as an industry in the UK, it is likely that Franchise Finance will grow alongside it. Cathryn Hayes insists that at HSBC, the finance team is seeing industry-wide growth universally. “The HSBC Franchise Team had an exceptional year in 2013, following really strong growth in 2012 and 2014 it looks set to deliver excellent lending figures again, a good barometer for the health of the franchise sector. HSBC approval rates for SME lending is quoted at 80 per cent of applications, against industry wide figures of 67 per cent. Our franchising approvals are even higher than this, which reinforces our positive approach to the franchise market. We are seeing franchise growth across most sectors.”
These lending figures indicate a confidence in the market that many would argue has not been there for some years. Analysing the HSBC franchise team figures further, shows that a wide range of successful businesses are looking to franchising for expansion. She comments: “We have been supporting strong viable franchises across all sectors and all sizes – providing funding for premises based, van based and home or office based franchises, remaining ‘open for business’ throughout the economic downturn. Presently, two of the strongest growth areas are the fast food sector, which remains very buoyant and we also see very positive signs in the domiciliary care market where significant growth is evident.” The continued relevance of the business plan in the franchise funding process has a huge effect on the growth of franchising nationally.
If Chris Roberts, Cathryn Hayes, Mark Scott and Richard Holden have taught us anything, it is that getting it right first time is crucial. Individual experience and financial records are now more of a factor in the presentation of a business plan than ever, but neglecting the financial projections and mechanics of the business is a sure route to rejection. For franchise owners looking to secure their new career, it seems research and attention to detail is everything.