The changing finance landscape for new franchisees: 5 things to do to ensure finance doesn't become a hurdle
Whether you're buying a business or a new house, the finance landscape has certainly changed in the last 12 months – so what does this mean for those looking to buy a franchise?
With interest rates at an all-time low, now is definitely an optimal time to consider new business opportunities, however lending criteria has also changed during the same time period, meaning it really pays to do your homework to ensure finance doesn’t interfere with or hold up your plans.
Here are five things you can do to help prevent finance becoming a hurdle:
- Get a clear picture of your finances
There’s no point dreaming about the perfect business if it’s out of your price range and once you start discussions with a lender, they’ll expect to see a minimum level of key information from you straight away – so before you do anything else, it is beneficial to get in touch with a finance broker and do some guided groundwork to get a picture of your finances. This will include looking at your savings, also known as your asset and liability lists, and what your borrowing capacity is. If you do this first, the entire process will be far more enjoyable and not overshadowed by disappoint due to unrealistic expectations.
- Don’t do ‘blind’ research
Just like buying a home, if you don’t do some initial prep work to narrow down your budget, the process can become very overwhelming. Much time can be wasted in wide research, indecision and changing your mind and all of this can delay your finance. If you do some initial groundwork and look to explore and compare a small handful of franchisors that are within your budget, suit the work-life balance you’re wanting to achieve and tick other key criteria like location and best-fit to your skill level, then you’re starting with a solid shortlist.
- Prepare your business ‘CV’
When meeting with a commercial lender (and a franchisor), it can be a bit like a job interview and filling them with confidence about your experience can only work in your favour. What kind of skills and background do you have that enable you to run this business? What kind of training will you get from the franchisor, both initially and on-going? Does the franchisor provide you with support in accounts, payroll, marketing etc – or is this something you have to do yourself (and if so, can you demonstrate previous experience). Be ready to have your ‘CV’ to present to the lender and optimise your chances of speedy success.
- Look at the costs – in detail
The costs that franchisors present can differ in detail and format. To ensure you’re getting the full picture – and to allow you to compare apples with apples – you should request to see the ‘full initial investment cost breakdown’. This should detail all of the costs, including the less obvious ones like legal fees, accounting fees and DA/Council application fees. Other costs to look for and enquire about include how many months of working capital it is suggested to have initially, bank guarantee requirements and clearly establishing who does the fitout (and if there are preferred supplies to provide quotes). You want to ensure you have a complete picture of the costs and show that you’ve done your homework before approaching a lender.
- Delve into the detail
It is beneficial to delve into the detail of the opportunity because the lender certainly will, too. Ask to see the franchisor’s disclosure document – very franchise needs to have one. This document details key information that will play a role in obtaining finance. For example, it will provide contact details for all existing franchisees. This can be very useful as you can contact people who have been through the same process to further understand their experience and support of the franchisor, plus ask any other questions you may have. This disclosure document will also detail information like open and closure rates and this is a key criteria lenders often use, as high closure rates flag a risk. It is also worth asking the franchisor for broker/lender recommendations as many have great options who already know the brand well.
While the lending criteria has changed, with interest rates so low now really is the time to take a closer look at buying that franchise you’ve always dreamed about. If you do your homework and prepare up-front, the process should go smoothly with minimal hurdles to jump.
Belgravia Health & Fitness
Belgravia Health and Fitness, the Australian leader in Fitness franchising with over 20 years’ experience in creating active, healthy communities. Its portfolio includes Genesis Health + Fitness, Coaching Zone and Ninja Parc Indoor Obstacle Course. Affiliated with JUMP! Swim Schools and BK’s Gym and Swim, Belgravia Health and Fitness supports more than 100 franchise locations across the country. It also forms part of the Belgravia Group: a private group of health, leisure, tourism, property, finance and technology companies with more than 200 locations and 7,000 employees Australia-wide.