Franchise financing – you’ve made the decision about your future as a Canadian entrepreneur and selected your franchise of choice. Now the only minor detail involves how to pay for and finance this major investment on your part!
The purchase of a franchise is an investment in your future, the ability to operate your own business and generate personal income and wealth – it therefore makes sense to ensure you finance that purchase in the right manner.
If you have purchased the right franchise you should first feel comfortable that you have selected a solid business model, and, where applicable, a good location. Franchises have a strong ability to generate sales and profit from the beginning because they have proven marketing plans, solid training for franchisees, and sources of supply and support. All of these factors are necessarily harder to obtain if you are starting a business that is a non franchise.
So we agree you have aligned yourself with a winning franchise model. How do you finance that franchise when you in fact read that business financing is as challenging as ever in the 2010 environment. The ‘ trick ‘ if we can call it that, ( its actually hard due diligence and working with the right people ) is to match the proper amount of debt and equity that leaves you with the right financing options for both the purchase of the franchise and future growth .
Let’s look at a real world example – We recently worked with a client who wanted to open a high end grocery chain. The client was under the impression that the entire 1 Million dollars + he needed was readily available from various single financing sources. The reality is that many lenders still view franchisees, as proven as they are, as start ups, and no one is ever going to lend one million dollars for a new venture. So what do I do now, asked the client? A practical solution for this client is what we call the ‘ cobbling together ‘ of various financial mechanism that will allow the franchisee to meet his goals, in this case that was a government small business loan, a term loan for equipment and working capital, and lease financing .
So we can’t over emphasize that franchise financing in Canada is about ‘options ‘. Investigate those options thoroughly, match benefits to risk and reward and cost of financing, and pick a suitable combination that works for your risk appetite. The largest corporations in the world have Chief Financial Officers that wrestle everyday with two terms – debt and equity. That is, how much do they borrow, and how much do they ask their shareholders to put in.
Guess what , you’re now the CFO of your own corporation and you are wrestling with that same conundrum – how much of your personal resources will you put in, and how much can you, and are you willing , to borrow . The proper balance of debt and equity in your Canadian franchise is what will bring you financial success.
Buying a franchise and then financing a franchise successfully is the key to your overall business success. Speak to a trusted, credible, and experienced franchise finance expert who will guide you through the maze of franchise finance options. Be prepared to make the proper amount of personal financial investment into the business, but at the same time don’t be afraid to take on good debt that makes sense for proper leverage and growth .That’s a solid financial strategy!