Discover practical franchise finance tips that can help you grow your business in the most cost-effective way possible.

One of the most cost-effective and practical ways to start a business is to get a franchise. You can enjoy the benefits of a sound marketing plan, a stable and well-known branding and limited capitalization requirement by being a franchisee. A huge company will give you a license to operate under its name online or in a brick-and-mortar location without worrying about the common business planning issues that startups face. Still, you need a fair amount of money to start a franchise.

1) Determine whether you have what it takes to be an entrepreneur

Franchising has lesser risks compared to a traditional business that you have to build from the ground up. You don’t have to spend sleepless nights thinking about a concept, a marketing idea or untested marketing strategies that could make or break your business. There is no need to worry about experimenting on new products that may not be accepted by the market. However, franchising is still a risk.

You are starting a business to take advantage of the current profitability of an existing opportunity. The risks that go with starting a franchise can be financial and psychological.

The pressure of introducing the brand is lesser compared to a new brand. But, the pressure of living up to its standards may take a toll on your finances; especially when the customers in your location are not as receptive to your franchise as the customers from another location where a similar franchise thrives.

Here are the qualities of a good entrepreneur:

  • Whether you like it or not, you have to do the books (simple accounting) to make sure that your business is still on track. Check your finances at all times—those that come in and go out, and those that you expect to receive at some point in time. Measure the gains and losses and make realistic projections that will serve as guide when growing your business. It is also important to get the paperwork done because of some reporting that comes with operating a franchise.
  • The franchise revolves around the products and strategies implemented by its parent company. However, a good entrepreneur is one who makes the most out of every opportunity using the available tools, with the purpose of gaining more than what others with similar tools in similar situation achieve.
  • Risk taker. Are you ready to bear the risk of a potential loss? An entrepreneur allocates financial resources wisely, but prepares for possible losses while expecting high levels of growth.

2) Look for the most affordable ways to finance a franchise:

  • Financing options offered by the franchisor company. Start looking for financing right at the franchisor itself. Check if they own finance companies or if they partner with third party financiers offering loans that can cover a huge portion of your franchise costs. You can also enquire about its own package terms, such as leasing the equipment you need to get your business rolling.
  • Bank loan. There is nothing wrong in checking whether you qualify for a standard small business loan from a bank that you have established a good relationship with before you explore some other options. But, note that only those with good credit rating and stable flow of income may qualify. Plus, banks will check if you are opening a franchise with a positive reputation, and whether you have collateral like bonds, stocks or home to secure the loan. Banks may offer you a good starting capital upon proving that you have passed their strict lending requirements.
  • Alternative financing options. Personal loans, business loans and home equity loans are some of the most popular financing options available for franchisees. However, it is important to consider not only your eligibility to qualify for a loan, but your capacity to repay and the affordability of the loan. Another factor to consider is the amount of the loan that you can qualify for.

Lenders may require some collateral that will allow them to recover their money, when your franchise goes bankrupt. But, be careful when comparing rates and other loan terms between online loan portals. Not all websites that offer to match you with private creditors can deliver exactly what they promised. In fact, many have been victimized by online lending scams because of fraudulent claims of those unscrupulous lenders.

3) Investors or business partners

  • You don’t have to do it all by yourself. Look for people who are willing to share the cost of getting a franchise. But, you have to share the profits and control too. You can turn to your family and friends for additional capital. Draw a mutually beneficial contract stating the interest rate and equity that you have to share with them in return for providing franchise finance. If you need further help, contact ALC Commercial.