Financing for success: getting the right backing for your franchise
The benefits of taking on a franchise are clear. Failure rates are low, research shows that most franchises are profitable and the support infrastructure from the franchisor can make the entry into the world of commerce much less daunting.
While buying a franchise doesn't guarantee success, investing in a proven franchise with robust training and support greatly increases an entrepreneur's chances of doing well. Yet the franchising industry in Northern Ireland is still relatively small and most people seem reticent to consider the opportunities available. However in my experience those who do go into franchising rarely look back.
So what makes a successful franchisee and how do you go about securing the necessary finance? Successful franchisees will do their homework and will understand which industry they want to enter into and why. They will seek advice from current franchisees and franchisors, industry bodies and legal experts and will know what level of financial commitment they can make upfront. Importantly they will engage an expert bank and accountant for financial advice, guidance and support.
Research shows that the typical start-up costs for a franchise are around £150,000 in the first year. Depending on the nature of the franchise and the extent and sophistication of the equipment and premises required, start-up costs can be much less or considerably more than the average.
Many people who have gone into franchising in recent years have used equity built up in their home as the necessary capital. A typical minimum cash investment is around 30 per cent, which leaves around 70 per cent of the start-up cost to be secured from an expert bank. The banking sector is increasingly open to franchise opportunities due to the success rates in the sector and the increasing quality of franchises on offer.
When approaching an expert bank for finance, the franchisee should ensure that they are well prepared.
A well researched business plan is essential, including analysis of the market and realistic financial projections. Demonstrating suitability for the industry by emphasising relevant experience and a business track-record are also important. Personal commitment through personal equity investment will also appeal.
Specialist banks like Ulster Bank offer a full package of support for franchisees as well as a depth of knowledge of the market. At Ulster Bank we develop relationships with franchisees and consider their success to be our success.
Written by David George of Ulster Bank