Irish franchise industry continues to grow
Recent years have seen strong growth in the number of franchise brands in Ireland, as increasing numbers of people consider franchising as a way to get into business
The Irish Franchise Sector generates an annual turnover of €2.4 billion, through 4,086 franchise units*. Jobs in the sector have increased every year since 2006 – there are now 43,000 full-time equivalent jobs. While historically franchise brands have originated from the USA and UK, the numbers of Irish originated franchise brands are growing.
Like the rest of the economy, the franchise community has been operating in a challenging business environment. However, changing spending patterns are creating opportunities for services that:
- Provide services to businesses (virtual office services, business cost management).
- Extend the lives of our assets (such as carpet cleaning, clothes alterations, small car repairs).
- Support the way we live today (home care for the elderly, home delivery for internet purchases, cost effective exercise and weight management services).
- Recognise changes in our social lives – more of us want value-for-money quality casual dining; children’s party outlets; reputable dating agencies.
- At Ulster Bank, we think it can make sense to go into business by investing in a franchise. If you buy a franchise from a well-established brand with satisfied, profitable franchise owners, your chances of success are higher than if you start a business from scratch.
Some things to watch out for:
- Check the franchise brand you are buying into is already successful – similar outlets should be trading well and generating profits.
- You are buying a package of training, business tools, products, marketing and management supports, do they exist?
- Are other franchise owners happy with business performance and the franchisor’s support?
- Does the business model make sense? Will people buy what’s on offer, at a price that makes profit for you?
- What about documentation? Has a solicitor written the legal agreement, and has your own solicitor reviewed it and explained its contents to you?
- Take independent legal and financial advice – talk to a solicitor with knowledge of franchising and enlist the expertise of an accountant to help you develop your business plan and cashflow projections.
Funding your franchise
Funding is available for people investing in well-run franchise brands. How much you can borrow, will essentially come down to two basics: how much it will cost to get the business established and how much can the business generate to repay your borrowings?
If you don’t anticipate the business will generate enough funds to cover expected repayments on your borrowings, then you, or the business, cannot afford the debt.
Would-be business-owners should expect to commit their own cash and assets to support their new business venture as well as borrowing from a bank. As a rule of thumb, franchise owners should expect to invest cash to cover at least one third of the costs of set-up and any expected losses, before the business starts to make profit.
For example, if you personally have €10,000 to invest in a business, you might realistically borrow up to €20,000 if your business plan suggests you will generate enough funds to repay that level of debt, within an agreed timeframe.
Do I need to draw up a business plan?
Absolutely – your business plan will be key to the success of your application for a bank loan.
Developing your business plan is not just something you do to please the bank, your business plan should be the bible for your business.
As you develop your business plan, you will work out what could make your business a success – and what stumbling blocks you may have to deal with. Preparing a business plan is an essential step in your preparation for becoming a business owner.
No matter what type of business you are setting up, your business plan should cover:
- Who will own and operate the business.
- What the business will offer – what makes it unique.
- Who are your intended customers and how will you attract them.
- Where will your business operate.
- What and who are key to the business – suppliers, staff, products.
- Who are your competitors, the business risks and your response to them.
- Finance – how much will it cost you to set up, how much do you need to borrow and what are your projected cash flows.
Your cashflow projections will be a vital component of your business plan as they will outline how much cash the business is expected to generate. Your cash flow projections should be ‘sensitised’ to show what could happen if the business is slower to get off the ground than you anticipate, or if costs are higher than you expect.
As a prospective franchise owner you will not be developing your business plan alone. You will have the support of your franchisor and the guidance and expertise of your accountant, who will help you translate your thoughts into a support tool to help you run your business.
At Ulster Bank, when we receive your business plan and are considering your request for finance we typically focus on five fundamentals to help us make a lending decision – the ‘5 C’s’ are:
Character – The borrower’s personal qualities.
Capital – The spilt between equity (the money put in) and the debt (money borrowed).
Collateral – The security given to the bank for protection of the loan.
Conditions – The assessment of the current economic market.
Capacity – The ability to repay the credit facility.
Ulster Bank offers a very competitive package for franchise and start-up customers. Ulster Bank’s Start-up Business Loan rate of currently 4.1 per cent** variable is available for start-up loans up to €70,000, while loans of up to €30,000 can be provided for new business development purposes without need for personal guarantees to be backed by assets.***
*Source: The 2010 All-Ireland Franchise Survey – UCD Smurfit Business School in association with Ulster Bank.
**Rates quoted effective as of 30/06/2012 and subject to change. Rate available to new business customers only.
***Lending terms and conditions apply. Details available at your Ulster Bank branch. Borrowers must be over 18.
Contact Ulster Bank to arrange a chat with one of the Commercial Managers near you:
Written by Orna Stokes (pictured right)