HOW TO GET MONEY FOR A FRANCHISE IDEA
How often have you thumbed through a business opportunity
magazine, noticed a franchise opportunity advertisement, and
felt you'd really like to get in on that ... if only you had the
money? If you're like most who are seeking greater opportunity
and wealth, this probably happens with you more often than you
care to admit, except perhaps in strictly private conversations.
When the average person sees one of these opportunities, or
comes up with a similar idea of his own, the problems of
start-up capital may seem formidable. But in reality, they may
not be. In fact, just about anyone with a good credit record
and an "insider's sense of business" can get the capital he or
she needs, whenever it's needed. The secret is in knowing how
to put together a proper proposal, and to present it to the
right person. These are the "how-to" instructions we're going
to give you in this report.
The first thing you're going to need is a complete business
plan. This is a complete and detailed description of exactly
how you intend to operate the proposed business. Your business
plan should detail precisely the product or products you plan to
sell; how you're going to produce or manufacture; all of your
costs (inventory costs if you're purchasing them from a
supplier); who is going to sell those products for you; how
they're going to be sold; the attendant costs; when you expect
to recoup your initial investment; your plans for growth or
expansion; and the total amount yow're going to need to make it
all work according to your plan. Your business plan must be
detailed -- complete with projected income and expense figures
-- through at least the first three years of business.
Now, assuming you have your business plan all worked out, put
together and ready for presentation with your request for
capital, let's talk about your capitalisation proposal.
First, keep in mind that whenever you ask somebody for money,
whether it's for a small personal loan or a large amount of
money to fiance a business, you're involved in a selling
situation. You have to prepare a "sales presentation" just as
if you were getting ready to sell an car or fridge. Within this
sales presentation you must have all the facts and figures; you
must anticipate the questions and the possible objections of the
prospective lendẹ with answers or explanations; and you must
"package" it as impressively as you would yourself for an audience with the
president of IBM.
The more money you ask for, the more "in the know" will be the
people you want to borrow from, and so the more detailed and
organised your proposal must be. This shouldn't cause you too
much worry however, because you can hire a CPA to help you put
it together properly, once you've got the facts and have a
business plan he can work from. Look at it this way: the more
money you request for your business, the more your lenders or
prospective investors are going to want to know about you, your
planning, and your business. They want to be impressed with the
fact that you've done your homework; they want to be impressed
with the fact that you've researched everything and documented
your facts and figures; they want to be assured by your
presentation that investing in your business will make money for
them. It's just that simple at the bottom line. Unless you can
instil confidence in them with your business plan and loan or
investment proposal, they're just not going to give much
positive thought to your request for capitalisation.
So you'll need a balance sheet describing your net worth -- the
worth of what you own compared to the amount of money you owe.
You'll also have to prove your stability and money management
talents relative to how successful you've been in paying off
past obligations. If you have had credit problems in the past,
get them "cleaned up", or at least explained on your files at
the national credit bureaus. Under the law, credit bureaus are
required to give you all the information they have about you in
their files, and it's your right to correct any errors or enter
explanations regarding negative reports on your credit. Do this
without fail because prospective lenders or investors will
definitely check your credit history.
So, now you have your balance sheet prepared; your credit
history organised in a light that's favorable to you; your
business plan (with costs and income projected over the coming
three years), and you're ready to start looking for lenders or
investors.
Almost all franchisors offer help in setting up with one of
their franchises. Most will go out of their way to assist you
in getting the financing you need. Some will lend you the
entire amount, with payments coming out of the income they
expect you to make from their franchise operation. Many will
carry this loan themselves, while others will carry part of it
and find you a lender to finance the remainder.
Franchisors have two objectives in mind when they offer
franchises to the public: They are trying to expand their
operation, thus increasing their profit, and they are trying to
raise capital for themselves. Generally speaking, if you have a
good credit history, and if they feel you have the necessary
business personality to achieve success with one of their
operations, they'll do everything within their power to get you
in a franchise outlet. Keep this in mind the next time you see
an advertisement for a promising franchise opportunity requiring
a substantial amount of cash outlay. You don't necessary have
to have all the money. They want you, and they'll help you!
Many people seem to be unaware that most of today's largest
corporations started on a shoestring -- on borrowed money. Many
people seem to think that unless they've got it all "in hand" in
savings, then they'll just have to keep plugging away until they
can save up enough to take the big plunge. Nothing could be
further from the truth. Just a quick bit of research will show
that 999 out of every 1,000 businesses were begun on borrowed
money. Look to your family and friends for financial help.
Approach them in a business-like manner; tell them about your
idea or plans, and ask them for a loan. Agree to sign a formal
statement to pay them back in three, five or ten years, with
interest.
When you have your proposal assembled, you might even want to
think of a limited partnership or even a general partnership
arrangement as a way to finance your project. In any kind of
partnership, each partner shares in the profits of the company,
but in a limited partnership, each person's loss liability is
limited to the amount of money he initially invested. The truth
is, in this kind of a situation, you'll be doing all the work
and sharing your gain with your partners, but then it's a fairly
sure way to obtain needed financing.
In every instance where you run into reluctance on the part of a
lender to lend you the money you need, explore the feasibilities
of "two-name" or "co-signed" loans. You can have the franchisor
sign with you, or even one of your suppliers, a business
associate, or even a friend. Often you can borrow or rent
collateral such as business equipment or property, and in this
way give greater confidence to the lender in your abilities to
repay the loan. Whenever you can show a contract from someone
who has agreed to purchase a certain number of your products or
services over a specified period of time, you have another
important piece of paper that most lenders will accept as
collateral. Still another possibility might be to get a bank or
a firm that has loaned you money in the past to guarantee your
loan. They simply guarantee that they'll lend you money if the
need should arise.
Going straight to your local bank, applying for a business loan
and walking out with the money is just about the most unlikely
of all your possibilities. Banks want to lend money, and they
must lend money in order to stay in business, but most banks are
notoriously conservative and extremely reluctant to lend you
money unless you have a "regular income" that "guarantees"
repayment. If and when you approach a bank for a business loan,
you'll need all your papers in order -- your financial
statement, your business plan, credit history, and all the
endorsements you can get relative to your succeeding with your
planned enterprise. In addition, it would be a good idea to
take along your accountant just to assure the banker that your
plan is verifiable. In the end, you'll find that it all boils
down to whether or not the bank officer studying your
application is sold on you as a good credit risk. Thus you must
impress your banker -- not only with your proposal, but with
your appearance and personality as well. In dealing with
bankers, never show an attitude of doubt or apology. Always be
positive and sure of yourself. However, don't come on so strong
to them that you're either demanding or overbearing. Just look
good, know your stuff, and project an attitude of determination
to succeed.
When you're looking for money to move on a business deal, it
does not really matter where the money comes from, or how it all
comes about. It's important that you get the money, and at
terms that are suitable to you. Thus, don't overlook the
possibilities of an advertisement for a lender or investor in
your local papers. Place your ad as well in national
publications reaching people looking for investments. Other
avenues to seriously consider are foundations that offer grants,
local dental and medical investment groups, legal investment
groups, business associations, trust companies, and other groups
or organisations looking for tax shelters.
Basically, it isn't a good idea to go to a finance company or
other commercial lender of this type for a business loan. The
most obvious reason is the high interest rates you have to pay.
These companies borrow money from larger money lenders and then
turn around and lend it to you at q high interest rate that they
pay. Herein lies the means by which they make money from
granting loans to you.! The more it costs them to provide the
money for you, the more it's going to cost you to borrow their
money. The only element in your favor when borrowing from one
of these agencies is that most will generally lend you money
against collateral other lenders won't always accept. Insurance
companies and pension funds are not too out of sight with their
interest rates, but they generally will not even consider
talking to you unless you're requesting $1000,000 or more.
They'll require that your business proposal be backed by the
best possible plan. Finally, the bottom line is this: You must
have a well-researched and detailed business plan; you must have
all your documents and projections put together in an impressive
presentation; and then, you will have to be the one who does the
final selling of your proposal to the investor or lender. This
means your appearance, personality and attitude, because ---
make no mistake about it --before anyonelends you any sizeable
amount of money, they're going to want to take a close look at
you personally before they hand over the money.
Actually, the different ways of financing a franchise
opportunity are as many and varied as your own creativity. The
sources of obtaining money are virtually limitless, and
available to anyone with an idea.
One word of caution before you jump into any franchise purchase
agreement: the price you pay to participate in a franchise
operation is not always the total cost involved in getting the
business off the ground. With some franchise operations, you
may find other costs such as down payments on the purchase of
property, building construction costs, remodelling or site
improvements, equipment, fixtures, signs, advertising, and
training. Virtually all franchise deals require that in
addition to the purchase price or the licence fee of the
franchise, you're required to give a certain percentage of your
gross business income to the franchisor, plus extra payments for
promotion and administrative costs. Above all else, before you
get involved in a franchise, or any business venture for that
matter, make sure you've conducted a complete and thorough
investigation of the opportunity presented. If it's a good
deal, then go with it; but if you have any doubts or feel as
though you're getting in over your head, back off and look
around for something not quite so ambitious, or perhaps
expensive.
There are a lot of good franchisd opportunities, and some not so
good. It's important that you be sure of what you're investing
in, and that you can make money with it. From there, preparing
the proper business plan and the necessary financing, while not
always easy, can be done. Now's the time to do it! We wish you
outstanding success with your franchise business.
