You have made the decision to purchase a new or existing franchise then quickly realize that basic question – How do you finance your franchise investment.
Money or funding as quickly becomes a top priority and your ability to successfully finance your investment in your new business will ultimately play a large part in your success or failure in your new role as a Canadian entrepreneur.
For non- financial people, those not trained or comfortable in finance that challenge suddenly looms large – at the same time you have read in the papers that business financing continues to be difficult as Canada comes out of the global financial meltdown of 2008-2009.
So how can you be successful then and finance your franchise investment in a manner that allows you to take advantage of your independent business opportunity. The reality is as follows – franchise financing is available in Canada today – it is some what of a custom made financing, and the three largest assets you can bring to the table to succeed are the ability to seek out a trusted and experienced franchise financing advisor, as well as your own business and credit experience, coupled with a relatively reasonable down payment.
The true secret to your overall franchise financing success is the ability to put together a solid, slick proposal that at a high level demonstrates your ability to run the business, the potential financial success of the business, and then presenting that information to sources of franchise financing in Canada.
A key ingredient in all of your planning should be a carefully tailored business plan that highlights the basics we have discussed – this would include a summary of your business experience (and why you will make the business successful), some key financial such as, at least, your sales and profit projections for one to perhaps 3 years. And equally as important in this data is carefull documentation of your costs and expenses.
So let’s assume you have that completed – you now have to present it to a franchise financing and funding source, and ensure you have properly describe the amount of equity of personal funds you will put into the business, as well as the debt component, or total borrowed funds. The magic relationship of the right amount of debt and equity in your business will leave you, as the financial textbooks describe, as ‘properly leveraged’. By that we mean simply that it is probably very wrong to purchase your business with all cash, and equally or moreso as wrong to assume you can or will borrow all the funds needed. Either of those strategies is not recommended!
How are franchises funded in Canada asking our clients? In our experience they are financed mostly by the government sponsored Small Business Loan. In addition that is supplemented by equipment financing where applicable, as well as your own personal investment in the business. Two other sources of financing sometimes come into play; they are a vendor take back on part of the financing, either by the franchisor or the franchisee you might be buying an existing franchise from. Also available in certain cases is the ability to negotiate a cash working capital term loan from the one institution we are aware of that provides that type of financing.
The proper mix of all of the above components of franchise financing will should in fact allow you to successful complete your acquisition.