Funding your franchise dreams: The road to success through asset finance

You're on a road trip to franchise success, navigating the twists and turns of entrepreneurship, and what's in your boot?

Funding your franchise dreams: The road to success through asset finance

That’s right, your assets! These valuable tools are the fuel that propels your journey. So, let’s explore the world of asset finance and how it can help to drive your franchising ambitions.

What is Asset finance? Asset finance can assist in turning your business vision into reality. It allows franchisees to acquire crucial assets, from much needed equipment to vehicles and machinery, by spreading the cost over time. Think of it as your roadmap to growth, helping you stay ahead in a competitive market.

Choosing your vehicle

When it comes to asset finance, there are various routes to consider in the UK market so let’s delve deeper into each type of asset finance and explore their unique features, benefits, and considerations.

Hire purchase

Firstly, there’s Hire Purchase, (HP), When purchasing, say, a commercial vehicle, you pay the purchase VAT and claim it back, if VAT registered, and then make fixed monthly payments to pay off the finance without any VAT added to these payments. Once your last monthly payment is made along with any option to purchase fee the asset is completed paid for.

Lease finance

When you lease a vehicle the finance payments are in fact generally calculated in the same way as HP. The difference is that the finance company will pay the purchase VAT. This helps you with initial cash flow. You then pay monthly rentals with VAT added but don’t think you don’t have any responsibility for the vehicle. You must still treat it as if you own it and insure and maintain it properly. At the end of the lease, you either continue to pay on an annual rental basis which is a notional amount often equal to one monthly rental per year or you can through a title transfer process to eventually “own” the vehicle. There is a fee for this that can be typically 2.5% to 5% of the value of the vehicle at that time or in some cases it the process is completed by the payment of one additional rental. In both end of lease cases a third party is required in the transaction.

Contract hire

Generally used with vehicles but is available on other assets as well with specialist lenders. In these agreements you set the annual mileage and the finance company will set a “hidden” residual value. They then calculate rentals and provide you with the vehicle. There are usually options to consider in service levels and you will need to be extremely careful to maintain the vehicle in the best possible condition. At the end of the agreement you hand the vehicle back and it is inspected and assuming it is an acceptable condition and within mileage restrictions there is no more to pay. The vehicle is then taken away and disposed of by the finance company.

In general it is hard to write in an article which route suits which circumstance the best, as factors can be varied. Like commercial vehicles which come in a myriad of different styles, sizes and functionalities. It’s important to speak to the right suppliers. There are a few that deal specifically in the Franchise sector like, V4vans, for instance and its companies like these that can understand your needs and source the right vehicle and any required conversations of additional equipment. The same applies to the financing, using a Franchise knowledgeable broker like d&t for example means that you circumstances are fully understood and your best interests are the priority when being offered funding solutions.

Asset refinancing

is like taking a pit stop to refuel and improve your asset fleet. This option allows you to release cash tied up in existing fully purchased assets, which you can then reinvest in your franchise’s growth. Here’s why asset refinancing is a valuable pit stop on your franchise journey:

If your franchise already owns assets, such as vehicles or equipment, you can leverage them to access additional capital. This capital can be used for expansion, marketing, or any other aspect of your business.

By unlocking capital from existing assets, you can maintain your business’s liquidity and cash flow. This is essential for day-to-day operations and taking advantage of growth opportunities.

With access to additional capital, your franchise gains a competitive edge. You can invest in initiatives that drive lead generation, marketing, and overall business growth.

However, asset refinancing requires a clear understanding of your existing assets’ value, and you must be willing to use these assets as collateral for the financing. It’s a strategic move that should align with your franchise’s long-term objectives.

But be careful as the older the asset you choose to refinance usually the higher the interest rate and the less favourable the terms that will be offered.

The pitfalls and potholes

While asset finance offers an exciting journey to growth, it is not without its challenges. It’s crucial to choose the right option for your franchise, considering factors like the asset’s lifespan, your budget, and your business’s cash flow. Striking the right balance ensures a smooth ride.

One of the most significant advantages of asset finance is that it minimises the impact on your cash flow. Unlike large, upfront payments for assets, asset finance allows you to budget effectively with fixed, manageable monthly payments. This not only keeps your financial ship steady but also ensures your franchise’s liquidity isn’t compromised.

You pay for the asset as you use it. It “earns” its way in your business.

One key point here though is that not all businesses will be able to secure funding facilities. These are subject to status and terms and conditions. Directors Guarantees may also be required and undoubtedly so for new and younger businesses without strong track records.

The right choice depends on your unique circumstances. This balance is the key to long-term success.

In conclusion

Franchisees, your assets are the wheels turning your business forward. Asset finance is the fuel that powers your journey, providing various options to choose from. Whether it’s HP, leasing, contract hire asset refinancing, each route has its unique advantages.

Remember, the road can be bumpy without the right guidance so make sure you speak with industry experts who understand your franchise needs and can help you make the best asset finance decisions. With a savvy broker and vehicle supplier as your co-pilots, your franchising journey will be smoother, more efficient, and ultimately more profitable. Look for personalised advice and solutions that suit your franchise’s specific needs. Whether you’re considering HP, leasing, or asset refinancing, trust a firm who can guide you through the process and empower you to make informed decisions that boost your franchise’s performance while maintaining financial stability.

Here’s where d&t Chartered Accountants, the franchise network accountants and brokers come in. We work with a number of industry affiliates such as V4Vans for example. Companies you can find that come recommended usually know the terrain, and their expertise in vehicle selection and finance solutions ensures that your business journey is as smooth as possible. Pick a team that understands the unique needs of franchisees, always keeping an eye on purpose and ROI and who can help you make the best business decisions, and your franchising journey will be smoother, more efficient, and ultimately more profitable.

Understanding the intricate details of each asset finance option can help you make an informed decision that aligns with your franchise’s goals. Expertise goes beyond the numbers; it’s about creating a tailored plan that ensures your franchise thrives. So, fasten your seatbelts, embrace the power of asset finance. Your dream business destination is closer than you think.

Phil Archer
Phil Archer