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 the product;
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 British
Telecom, or 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 favourable 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 favour 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 £500,000 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 anyone_lends 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.
does not really matter where
the money comes from, or how it all
comes
about.