Launching a franchise is a unique opportunity to start your own business while benefiting from the strength of a recognised brand. However, careful financial preparation is crucial to ensure the viability of your project.
FRANCHISEBIZ presents the key steps to understanding the financial requirements of a franchise project, building your personal contribution, and exploring financing solutions.
1) Understanding the Financial Components of a Franchise Project
Before getting started, it’s important to fully grasp the financial elements that structure a franchise project:
- Personal contribution: This is the amount you need to invest from your own funds into the project, usually representing between 20% and 40% of the total investment. It demonstrates your commitment and serves as leverage to secure bank financing.
- Total investment: This is the total amount needed to launch your business. It includes the franchise entry fee, renovations, equipment, and initial stock.
- Royalties: These are regular payments to the franchisor, usually based on a percentage of your revenue, covering services and ongoing support.
2) Building a Solid and Diversified Personal Contribution
Building your personal contribution is a key step to securing external financing. If your personal savings are not enough, several solutions can help you supplement your contribution:
- Personal savings: This is often the first source of funding. However, it’s essential to keep part of your savings for unexpected expenses and to maintain your financial stability.
- Family or friend support: Financial assistance in the form of a gift or interest-free loan from relatives can strengthen your personal contribution.
- Sale of non-essential assets: If you have unused assets or property, selling them can help you complete your personal contribution.
- Bond financing: A less common but interesting option is the use of bond financing. This involves issuing bonds that investors can purchase, allowing you to raise funds without diluting your company’s equity. However, this option requires paying interest and repaying the principal at maturity.
3) Securing Structured Bank Financing
Once your personal contribution is in place, you can apply for a bank loan. Bank financing is a key source to cover the remaining investment. Franchises, with their proven business models, generally reassure banks, provided your application is well-prepared:
- Presenting a solid business plan: The business plan should include realistic financial forecasts, a market study, profitability projections, a detailed cash flow plan, and growth prospects. It should also highlight the success of the franchise network you are joining.
- Negotiating loan terms: Depending on the quality of your contribution and application, you can negotiate the loan amount, repayment terms, and interest rates. Remember that the most experienced franchises often have agreements with partner banks, which can facilitate access to financing under favourable conditions.
4) Exploring Alternatives to Bank Financing
In addition to bank financing, several alternative solutions exist to complement your funds or diversify your sources of financing:
- Public aid and grants: Depending on the country, region, or sector, specific financial assistance is available for entrepreneurs, such as grants, interest-free loans, or tax exemptions.
- Peer-to-peer lending: Specialized platforms allow you to raise funds from individuals willing to invest in entrepreneurial projects.
- Crowdfunding: This method allows you to raise funds from your community or investors interested in your project. It can also serve as leverage to convince a bank or more traditional investors.
- Business angels: These private investors are looking for high-potential projects. In addition to financial support, they can offer strategic guidance and a valuable network.
Building a solid personal contribution is an essential step for franchise success. Diversifying your financing sources, potentially including bond financing, while maintaining rigorous financial management, will help you approach the creation of your business with confidence.
At FRANCHISEBIZ, our teams can connect you with specialized partners to help finance your project. Contact us to learn more!
Founder & CEO at FranchiseBiz