GETTING FINANCES IN ORDER

Finance essentials you’ll need to know to get a bank loan.

What counts when looking for a loan.

You are ambitious and looking for a new challenge, but you don’t want to join the rising number of small businesses that fail. The opportunity to take control of your schedule, career path and work environment is appealing, but what about the obvious risks an inexperienced small business owner must face?

A franchise seems like the ideal compromise. You’ll be your own boss but with the security of an established framework.

Plus, there’s the benefit of training, expert advice and a tried and tested system of doing business.

Now you’ve made your decision to go into a franchise and perhaps you have gone so far as choosing a franchise system. It’s still early days, try not to get too emotionally invested. Approach your purchase with optimism but be realistic.

Reputation is vital to your franchisor, so they’ll do everything they can to help you accomplish your goals. Part of that process is making sure you aren’t overburdened by your financial commitments. The onus is on you to prove to your franchisor that you have the capacity to meet your financial obligations.

Unless you are lucky enough to have a large amount of cash on hand you are going to need finance from a bank or other lender. Australians traditionally love to hate banks; we think of call centres, endless paperwork and red tape but there’s a lot you can do to make the process a lot less painful.

We often think lenders are negative and pessimistic but that’s not true. Like franchisors, they are actually keen to see

businesses grow and succeed. They just want to make sure you are going to be able to make the repayments, and no one wants to take on a loan that they are unable to pay back.

GET YOUR DUCKS IN A ROW

Don’t approach the task of preparing your financial information with dread. This is a fantastic opportunity for you to do a rigorous evaluation of the business. You will be able to challenge any unrealistic expectations, anticipate any problems and make a reliable assessment that will help you decide how this investment is going to work for you.

Banks are cautious and slow-moving so everything you can do to accelerate the process will work in your favour.

This is your chance to sell yourself to the lender so present an accurate and organised picture. Take your time and don’t be rushed because errors will erode your credibility. Good preparation is key to enhancing your application’s success; if you need to amend figures or supply additional documents you will delay approval.

START WITH A BUSINESS PLAN

This provides the lender with a comprehensive glimpse into your business strategy, purpose and the method of accomplishing your goals. Aim for an honest, accurate and upfront financial summary of your franchised business.

Ensure your plan includes a compelling summary of the background and skills the key managers and support personnel possess. This will comfort the bank that the business will be run successfully.

The lender does not need to be presented with a thesis; focus on quality rather than quantity and keep it concise. You have the advantage of a franchise disclosure document and it contains a lot of the information you require to create your business plan. Your franchisor may help you build your business plan or provide a template if you can’t find one online.

A good business plan will calculate: set up costs forecast profit and loss offer cash flow projections provide a forecast balance sheet.

Use these figures to calculate the amount you need to borrow and estimate your loan repayments. It is very important to ensure your cashflow is as robust and realistic as possible, with all the relevant assumptions underpinning it fully disclosed. Be as detailed as possible when it comes to these (e.g. staff levels, stock levels, seasonality).

PERSONAL DOCUMENTATION

Provide asset & liability statements as well as a summary of your personal income outside the proposed business. Bank statements can provide a picture of your financial position and proof of personal income, savings, loans and credit card debts.

If someone is guaranteeing the loan provide that information too.

SPEAK TO AN ACCOUNTING EXPERT

Before you go to the lender seek out expert advice and look for accountants who understand franchising. Ask them to look over your business plan, they will offer you a rational and unbiased opinion. They should prepare your personal balance sheets based on the information you provide.

It’s a good idea to shop around for the best loan to suit your needs. Comparing lenders is time-consuming and complicated; finance brokers understand the market. We look at the big four business banks but may also be able to secure a more suitable loan from a less traditional source (or sources) such as a Fintechs or peer to peer lenders.

Now you have done all your preparation and obtained some initial advice from the experts you need to evaluate your personal circumstances. If the figures don’t add up and there’s no margin for error, don’t be afraid to put the brakes on your franchise dream.

You can look at managing your personal finances by paying down debts and accruing savings, examining more affordable franchise systems or waiting for changes in the market. It won’t happen overnight, but it will happen, and when it does your patience will be rewarded.

Take your time and don’t be rushed because errors will erode your credibility.

Good preparation is key to enhancing your

application’s success