Financing a franchise in Canada properly allows a Canadian entrepreneur to start a business that is established and is a proven business model based on the success of your franchisors system, number of units , and general brand recognition and success .
The financing challenge that you face is often quite simply based on the amount of full financing that you need for the purchase of a new or existing franchise . In Canada franchises that require financing range all the way from 25,000.00 to several million dollars .
One of the positives of financing a franchise in Canada is that in general the overall concept of franchising is viewed as having in many cases a better chance of success as opposed to an individual start up . This may or may not be the case, but just the simple fact that the Canadian banks in general in Canada are favourable to financing a franchise is a positive statement . Most Canadians know that small and mediux sized start up operations in Canada are difficult to finance from the get go .
So is there an exact process or method in financing your franchise . The answer is that there is clearly no one proven method utilizaed by all parties to finance a franchise . But there are a number of both proven planning methods, as well as exact financing strategies that can be employed to complete a successful acquisition of a new or existing business .
The initial process you should focus on is some simple cash flow planning around the requirements of the business that would allow you to complete the transaction and open the door for business . However , any business , even if it’s a ‘ cash ‘ business per se requires some level of working capital financing . If you business is going to have any level at all of inventory or accounts receivable that places a pressure and demand on cash flow .
Most franchisors will assist you in determine what the initial requirements are . In many cases they will actually stipulate or strongly recommend that you don’t enter into the business without a specific level of personal investment couple with the asbility to borrow additional funds .
A critical part of your overall cash flow planning is of course to allow for the ability to pay back royalties to the franchisor every month, as this is how the franchisors themselves generate revenue and utilize these funds for additional expansion of the chain .Naturally all franchisors want you to be successful, because you will then be ergo making them more successful . That’s the franchise fundamental business model .
Things you need to take into consideration in your financial planning and acquisition of a franchise are the basic cash flows, the ‘ ins and outs ‘ we could call them, of the business . Things to consider are your operating expenses, advertsing you might undertake, the aforementioned royalty payments, and long term cash needs for things like equipment , etc.
Clients ask us if there is a simple or recommened manner in which to sit down and plan all this . There is of course, and its utilizing a basic cash flow or business plan template that will allow you to simply enter in projected revenues and expenses, and out of that will automatically fall out your cash flow needs . The — things you need to consider are initial monies that you will put in personally as an investment, plus funds you will borrow , and the breakdown of how these funds will be repaid .
Once you have done the proper amount of planning and analysis sit down with your funding sources, or someone who has experience , credibility, and that you can trust for solid franchising advice . In Canada franchises are financed by a special government program that works well for this type of funding, as well as your own investment , plus additional borrowed funds from commercial finance or leasing companies . Carefull planning will allow you to cobble together the right amount of financing for both short term and long term needs .