Connect with us

Franchisee Advice

Finance your Franchise

This is it. You’re ready to begin your franchise dream. Only one thing is left: Finding the money you need.

Entrepreneur

Published

on

034

You’ve read the literature, done your due diligence, considered the statistics on success, and know a franchise is the way you want to get into business.

But before you sign on the dotted line, answer this question first: Where will you get the money to finance the franchise, royalty fees, inventory and working capital?

The first thing you want to do before approaching any lender is determine what your net worth is. To do this, use a personal balance sheet to list both your assets (what you own) and liabilities (what you owe). Under assets, list all your holdings – cash on hand, chequing accounts, savings accounts, real estate (current market value), automobiles (whether paid off or not), bonds, securities, insurance cash values and other assets – then total them up.

The second part of the balance sheet is liabilities. Follow the same steps. List your current bills, all your charges, your home loan, auto loans, finance company loans and so on. Subtract your liabilities from your assets.

Once you’ve worked up this sheet, take a good look at your credit rating. There are three common ingredients that all potential lenders look for in a credit rating: stability, income and
track record.

Information Gathering

Most lenders are interested in how long you’ve been at a certain job or lived in the same location, and whether you have a record of finishing what you start. If your past record doesn’t show a history of stability, then be prepared with good explanations. Not only is the amount of income you earn important but so is your ability to live within that income.

Most lending institutions look at your income and the way you live within that income for one very good reason. If you can’t manage personal finances, the odds against you being able to manage your business finances are very good.

The third element lenders look for is your track record – how successful you’ve been in paying off past obligations. If you have a record of delinquent payments, repossessions and so on, you should get these squared away before asking for a loan.

Most lenders will contact a credit bureau to look at your credit file. We suggest you do the same thing before you try to borrow. Once you have this tool, you should correct any wrong information or at least make sure your side of the story is on record.

Tips to Consider

There are infinite sources of financing available to help you launch the franchise of your dreams. However, operating a franchise with no reserves and blinding yourself to unexpected business problems can lead to disaster. A good rule to remember: Never invest more than 75% of your cash reserves. If you have R40 000, invest R30 000. If you have R100 000, invest R75 000.

More important, remember that the price of a franchise doesn’t always reflect the actual cost of the business itself. Additional costs can include down payments on the land, building, equipment, fixtures and signs, and can cover inventory, leasehold improvements, training, opening promotional costs, administrative costs and even sales commissions.

Source: The Small Business Encyclopedia, Start Your Own Business, Entrepreneur magazine and Entrepreneur’s StartUps magazine. © Entrepreneur Media Inc. All rights reserved.

TOP TIPS

15 fast franchise financing tips

  1. Talk to your franchisor before searching for outside financing; get approved or pre-qualified.
  2. The most common source of start-up capital is friends and family. Use them.
  3. Seek out lenders that understand not just small business but franchising as well.
  4. Be totally honest and upfront with lenders. Hide nothing. Be prepared to explain everything.
  5. Neatness counts. Fill out your credit and loan applications clearly. Typed is better.
  6. Don’t weigh down your loan application with attached documents.
  7. Don’t exhaust your liquidity by paying off outstanding debts before filing a loan application. Lenders want you to have capital available.
  8. If you lack liquidity, find a partner with money.
  9. Consider equipment leasing to conserve start-up capital and improve the appearance of your balance sheet.
  10. Keep debts and expenses to a minimum. Many business owners take on too much debt, forgeting that cash flow must pay that debt.
  11. Consider buying used equipment, furniture, vehicles, etc.
  12. Let your fingers do the walking on the Internet before wasting time, energy, gas and phone calls. You’ll find useful information. Some sites even allow you to file loan applications online.
  13. Don’t overlook angel investors and venture capitalists.
  14. Avoid dipping into your retirement money or your kids’ college funds. Any start-up – even a franchise – is a risk.
  15. Don’t give up!

Entrepreneur Magazine is South Africa's top read business publication with the highest readership per month according to AMPS. The title has won seven major publishing excellence awards since it's launch in 2006. Entrepreneur Magazine is the "how-to" handbook for growing companies. Find us on Google+ here.

Advertisement
Comments

Franchisee Advice

Develop Digital Marketing Competency In 3 Simple Steps

Conquering the digital revolution needn’t be daunting. Polish up your tech skills and watch your digital marketing prowess increase throughout your franchise.

Diana Albertyn

Published

on

digital-marketing

As a franchisor, digital marketing may be proving to be a challenge due to the unique structuring of the business.

“The very nature of franchises is ‘structured’, however, when it comes to marketing, that structure often lacks,” says Marcela De Vivo, Founder and CEO of Gryffin Media.

Franchisors and franchisees often struggle to reach common ground when looking to achieve different marketing goals. While the franchisor needs to control the brand in its entirety, the franchisee wants to market their business using particular strategies suited to their location.

Research has found that smartphones are the biggest influencers of 82% of users when they make their in-store purchase decisions while. It’s for this reason that the importance of digital marketing for franchises has increased.

Here’s how to harness its power of influence, amplify foot traffic and solidify brand loyalty:

1. Recruit digital natives and early adopters

As much as you’re the leader of your franchise network, there are franchisees in your chain you could learn from. The global increase in millennial franchise owners means it is highly likely that you’ll be able to identify early digital adopters within your franchise network.

“The best people to learn from are those who have been in your shoes before,” says Matt Forman of the Franchise Centre at Griffith University.

“Encourage and support their efforts and use them as case studies to demonstrate to the rest of your franchisees the value of digital marketing, and how to do it right.”

2. Invest in training your team

“Each digital competency level requires more education and resources in order to integrate digital marketing with your physical stores,” says Forman. For this reason, regularly investing in continuous training for your team so as to ensure they keep abreast of any new and emerging trends.

Proactivity and adapting to the constantly evolving digital landscape led KFC to open a LinkedIn account for its founder and mascot Colonel Sanders. KFC’s out of the box tactic is a fresh approach to what has long been considered a B2B platform, under-utilised as a B2C platform.

3. Apply custom targeting techniques

The discovery of new and small businesses is being fuelled by Google searches, social media and online reviews, making these platforms a goldmine of invaluable tools.

Leveraging certain custom targeting techniques like easily searchable keywords and exposure on other reputable and high-traffic websites, gives your franchise’s digital marketing efforts a boost. This results in an effective campaign, favourable reviews and meaningful and lasting interactions with consumers “whether it’s a reply to a Facebook comment or a retweet,” says Entrepreneur’s Emily Conklin.

Continue Reading

Franchisee Advice

How To Hire Skilled Workers For Your Franchise

Your staff run your business – you just have to show them how. This is why employing the best people for the job is essential.

Diana Albertyn

Published

on

hire-skilled-workers-for-a-franchise

According to the Franchise Association of South Africa (FASA) 2017 Franchisor Survey, one of the main challenges facing franchisees is finding the right staff.

“Staffing your franchise can be one of the most challenging parts of running a successful business. Without a great team of employees, you cannot run your business effectively,” says Saxon Marsden-Huggins, founder of WebRover.

These three tips could help you find the best employees for your franchise outlet:

1. Don’t hire in haste

While you may be rearing to go and keen to fill gaps to speed up profitability, research your candidates thoroughly.

Related: Insights On Recruitment That Could Affect Franchise Performance

As the job applications keep flowing into your inbox, keep in mind that not all of them qualify for the positions available – it may even be a small percent who are actually viable candidates. This is why your hiring process should include:

  • Taking the time to thoroughly screen CVs to develop a short list
  • Creating a carefully crafted list of interview questions
  • Setting aside adequate time for thorough interviews
  • Getting to know the candidates through a second round of interviews to confirm your choice.

Giving the hiring process dedication and attention will ensure you get the cream of the crop, contributing to the long-term success of your franchise.

2. Demonstrate support in the workplace

While you can instil the necessary skills into new recruits, it’s difficult to train for culture. This is why choosing the right employees from the beginning will make the rest of your franchise management system will run more smoothly.

“The manner by which you run the franchise will influence employee perceptions of the brand as well,” says Hireology’s Erin Borgerson. “Your staff must become ambassadors of your franchise system to attract the target consumer market.”

The best way to do this is encouraging staff to give you their honest feedback. Your commitment to creating and upholding a positive culture will result in increased loyalty from your current staff and a superior pool of applicants.

Related: 3 Things You Should Consider Before Buying Your First Franchise

3. Offer appealing incentives

When advancement opportunities are clearly communicated, staff is keen to hear how they can get there, as they have career goals of their own. Encouraging this ambition will draw good employees to your franchise.

“Helping employees understand the steps to advancement helps them to view their current job as an important part of a career with an upward path, not just a pay cheque for this week,” say financial reporting technology experts at Qvinci.

Performance bonuses and employee benefits incentivise staff’s efforts, therefore increasing their income alongside the profit of the business. “This serves to make employees a part of the business and not merely people ‘who work there’,” they explain.

Continue Reading

Franchisee Advice

3 Ways Communication Helps You Run Your Franchise Better

Managing your business as an independent owner may have been challenging at the beginning, but – as you’ve come to realise – the successful operation of a franchise network requires an extended set of skills.

Diana Albertyn

Published

on

franchise-system-management

“When it comes to a multi-location business such as a franchise, effective communication is vital,” says Dani Peleva, Managing Director at online marketing agency Local Fame. “So what happens when you’re struggling to connect with the franchise network you have in place?”

It may be time to upgrade your franchise management skills, because the success of your franchise network has a direct correlation to how you integrate feedback systems into your management processes.

Have a clear comprehension of the challenges your franchise encounters, keep an open chain of communication between yourself, franchisees and managers, and maintain regular interactions between everyone in the network. These are some of the most crucial aspects of successful franchise management:

1. Understand the challenges you face

A thorough understanding of your business requires dedication to regular and consistent groundwork for first-hand experience on how the day-to-day operations of the business are conducted.

Related: 3 Core Strategies For Building Successful Franchise Organisations

“Seeing and talking to the people that make your business will help you understand the challenges that franchisees face and the systems they need to drive higher profitability and growth,” says Rosie Niblock, Marketing and Communications Manager at Proactive Marketing.

“That way you can work more effectively to make improvements to franchise management systems logically and within the financial grasp of all franchisees.”

2. Get personal through regular visits

You never want your franchises to feel neglected. It’ll demoralise them and possibly drop sales, profits and their ability to keep the business running as you intended. Maintaining regular contact and sharing as much information as possible – when you can – fosters strong relations with your franchisees.

Empowerment through information and communication makes a difference in the business and helps franchisees make decisions in favour of the business and to make sure that they all pull in the same direction in terms of customer satisfaction, says Alan van der Westhuizen, executive manager of new business sales at Fournews, a 20-year-old franchise holding company for News Café, Krispy Kreme, Moyo, Brooklyn Brothers, Smooch, Cafe Fino and Go! outlets.

Ensure your response to these concerns is swift. “If not discussed they could fester ad create undesirable rumours,” says Niblock.

Related: How To Write An Operations Manual For Your Franchise

3. Create events for network collaboration

One of the most important aspects of managing your franchise is meeting with all your franchisees, at least annually. “Franchise conventions are almost certainly the biggest tool when it comes to building profitable engagement,” says Peleva. “They’re one of the most important things to focus on when you’re considering how to lead your franchise network.” According to her, a successfully attended and executed convention will let you:

  • Boost your network-wide productivity
  • Hugely increase your profitability
  • Drive passion for your brand

Communicating with your franchisees is the best way to identify problems, work towards solving them, and building a pleasant and fruitful relationship with your owners.

Continue Reading

Trending

FREE E-BOOK: How to Build an Entrepreneurial Mindset

Sign up now for Entrepreneur's Daily Newsletters to Download​​