Key to success
Kevin Noble on the ways to improve your chances of success with your business and the bank
Improving your chance of success with your business and the bank go hand-in-hand, and are very much dependent on the quality and scope of your business plan.
First and foremost, take time to prepare and seek advice. Do not make hasty decisions or rush into signing legal agreements before you are ready and/or have funding in place. Advice should be sought from professionals affiliated to the British Franchise Association (bfa), as they have a proven track record in the support that they offer to other franchisees.
The key to any business is the people who are directly involved in the day-to-day operations. This is no different in franchising. In part, this falls to the quality of the franchisor and the systems and support that they offer. Your research in this regard is key. It goes without saying that one of the significant advantages of an ethical franchise is the quality of the training and support and in most instances this means you do not need previous direct experience in the chosen business but will develop skills as part of the package or oversee the operation as a management franchise.
However, of equal importance is your ability to demonstrate that you can add value to the franchise to ensure a successful business. Preparation of a CV will help you understand what key skills you are bringing to the role and identify any gaps. You can then gauge for yourself whether the training and support will fill this void. Whilst historic qualifications are important, identification of key personal skills such as: attention to detail, meeting deadlines, team skills, leadership, people skills and sales experience are likely to add the real value.
An accurate assessment of the total start-up budget will ensure you do not have any unwelcome surprises before the business is even launched and that the figure of funds requested, whether from the bank or another source, is right for your needs. It will also help structure the best way to support you. The list must include all items such as the franchise fee, training, accommodation, equipment, property costs and VAT.
Careful consideration needs to be given to whether you have sufficient cash stake to inject into the business to get it off the ground, remembering it may be tied up in the business for a long period of time. In many instances, banks will agree the borrowing, only to find out that the franchisee has no cash available of their own, despite assurances that they do.
As a general rule of thumb, a bank with a dedicated franchise team will provide funding up to a maximum level of 70 per cent of the total start-up costs and working capital. Initially, you must calculate the total of all expected costs, including VAT and verify this with the franchisor. You will then be able to decide whether you can come up with at least 30 per cent. From a bank’s perspective, where these funds have come from, ie savings, family or borrowed funds is important as you will have the consideration not only of meeting the bank loan commitment, but also that of your contribution from elsewhere. A franchisor will also wish to understand this, before investing time and effort in the recruitment process.
Do not simply rely on projections or illustrations provided by the franchisor. Undertake your own research by speaking to other franchisees in the network. An ethical franchisor should provide you with their contact details. If they do not, ask yourself why.
Other franchisees can be a great source of information such as support offered by the franchisor and the franchisee network, quality of marketing and whether projections are realistic. Remember, they have all been in the same position as you.
Financial projections are the cornerstone of any business plan. These usually come in the form of a cashflow forecast and operating budget (profit and loss projection). They provide an insight into how you are going to pay the business bills together with your own salary. They will also help you verify the level of contribution and borrowing that you may require and the likely impact of changes to income and costs or timings in receipt of monies owed or payments to your suppliers and staff.
The ability of the business to pay you an adequate salary is often overlooked within the business plan. This is the amount that the franchisee will need to take from the business to meet their living expenses, household bills and spending money. In order to make an accurate assessment of the amount required, a detailed income and expenditure statement should be completed. A detailed breakdown of all loans, credit cards and mortgages,
together with other family income, will assist and ensure nothing is missed.
When considering the advantages of the franchise, it will ultimately fall to you to generate sales and customer interest. A detailed marketing plan is vital. Added to this, the need to retain customers is absolutely key and the ability to identify how the franchise can support this or what innovation is required on your part should be considered.
Finally, give careful consideration to the location of your business and details of competition. In-depth research should be undertaken to understand what makes them tick and in what areas you can compete. This can be ascertained by looking on the web or making calls as a prospective customer. In many instances, competition can be a positive factor.
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