Plan for the worst to stay on top of franchise financing

It's a sad fact of franchising that financially-stretched franchises don't do as well as better-financed franchisees. So, getting the accounts right from the start is essential

Plan for the worst to stay on top of franchise financing

One of the major decisions a potential franchisee needs to make when deciding to start a franchise is how much to invest. But before that, simple steps can be taken to examine finances.

When you start your new business, you may not be able to draw an income from it for a period. Dependent on the type of franchise chosen, the timescales could range from a few months to years, so it’s essential to have enough funding over these periods.

Start with your home-running costs. Prepare a list of personal expenditure for the family. Base it on previous fees by obtaining figures from bank and credit card statements and other bills, which will ensure the numbers are accurate. The most important advice I can give is to be realistic.

Be pessimistic and plan for the worst possible scenario by factoring in the worst potential costs. What if the boiler breaks down or you get a puncture and need new tyres on your car? You need to be able to continue to afford essential but unexpected items of expenditure.

Once you have a realistic budget, add in some costs for contingency. Don’t forget birthday and Christmas presents and seasonal expenditure such as holidays. While you may need to pull in some pursestrings when starting your business, it’s important to have a realistic picture of your true costs. Now you know how much you will need to take out of the business to live.

Next, will you need to borrow money to finance the franchise? If so you will also need to factor in repayments for the loan and interest costs. Now that you have this information you can start to think about how much to invest in a franchise.

When deciding on a franchisor, it’s important you assess the true cost of the franchise. All franchises will have additional costs on top of the initial franchise fee, these could be business set-up costs, stock purchases or marketing costs. Getting a clear idea of actual investment costs and business running costs is essential.

Now you’re ready to explore ways to fund your franchise, such as specialist franchise loans. Ensuring you have enough working capital to run your franchise will help keep the start of your franchise journey as stress-free as possible. This will give your new business the best opportunity to succeed.”

Sussanne Chambers
Sussanne Chambers