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Franchise Financing – A Canadian ‘ how to’ Model !

Guest post by: Stan Prokop

Article Overview: Finance strategies for buying a franchise ; Information on how Canadian entrepreneurs can be successful in franchise financing , and how to implement finance strategies for buying a franchise .

Franchise Financing – A Canadian ‘ how to’ Model !

Franchise financing - you've made the decision about your future as a Canadian entrepreneur and selected your franchise of choice. Now the only minor detail involves how to pay for and finance this major investment on your part!

The purchase of a franchise is an investment in your future, the ability to operate your own business and generate personal income and wealth - it therefore makes sense to ensure you finance that purchase in the right manner.

If you have purchased the right franchise you should first feel comfortable that you have selected a solid business model, and, where applicable, a good location. Franchises have a strong ability to generate sales and profit from the beginning because they have proven marketing plans, solid training for franchisees, and sources of supply and support. All of these factors are necessarily harder to obtain if you are starting a business that is a non franchise.

So we agree you have aligned yourself with a winning franchise model. How do you finance that franchise when you in fact read that business financing is as challenging as ever in the 2010 environment. The ' trick ' if we can call it that, ( its actually hard due diligence and working with the right people ) is to match the proper amount of debt and equity that leaves you with the right financing options for both the purchase of the franchise and future growth .

Let's look at a real world example - We recently worked with a client who wanted to open a high end grocery chain. The client was under the impression that the entire 1 Million dollars + he needed was readily available from various single financing sources. The reality is that many lenders still view franchisees, as proven as they are, as start ups, and no one is ever going to lend one million dollars for a new venture. So what do I do now, asked the client? A practical solution for this client is what we call the ' cobbling together ' of various financial mechanism that will allow the franchisee to meet his goals, in this case that was a government small business loan, a term loan for equipment and working capital, and lease financing .

So we can't over emphasize that franchise financing in Canada is about 'options '. Investigate those options thoroughly, match benefits to risk and reward and cost of financing, and pick a suitable combination that works for your risk appetite. The largest corporations in the world have Chief Financial Officers that wrestle everyday with two terms - debt and equity. That is, how much do they borrow, and how much do they ask their shareholders to put in.

Guess what , you're now the CFO of your own corporation and you are wrestling with that same conundrum - how much of your personal resources will you put in, and how much can you, and are you willing , to borrow . The proper balance of debt and equity in your Canadian franchise is what will bring you financial success.

Buying a franchise and then financing a franchise successfully is the key to your overall business success. Speak to a trusted, credible, and experienced franchise finance expert who will guide you through the maze of franchise finance options. Be prepared to make the proper amount of personal financial investment into the business, but at the same time don't be afraid to take on good debt that makes sense for proper leverage and growth .That's a solid financial strategy!

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Article Tags: buying a franchise, finance Canadian franchise, franchise financing



Related Forum Posts
Re: Franchise 'due diligence' checklist - One of the things I focus on is this: Does the Franchise fit the Business Model you are interested in? Meaning, are you going to be doing what you want to do on a daily? For example, if you are a restaurant manager now and you hate your job because of the hours, then don't buy most food franchises. You have experience of course, so it is more comfortable, but you will basically be doing very similar duties and hours as you were before. I always go through a series of questions, answers, more questions, more answers etc... to help my clients figure out what Business Model they are most interested in, I do this before even discussing a single name with them, they tell me what the business model is and then I match them up to that type of business, explain the entire business model as best I can and then and only then do we discuss the name of the company. Too many times people come to me wanting to own "abc" name brand franchise, when they don't even understand what type of business it really is and what they will be doing every day.
re: restaurant start-up - I'm not sure about government grants for restaurants, but my recommendation would be to approach a lender that offers loans under the Canadian Small Business Financing Loan program where the government will guarantee 85% of the loan. You can borrow up to $250,000 to finance equipment and renovations under this program. Restaurants are very risky business, however some of the Chartered Banks will look at restaurants if there is enough of an initial equity investment and you have a solid business plan (experienced management team, good concept and strategic location).
Re: Enticing Franchises - Top 9 List - All Franchise listed above are in millions of dollars. Do you have the list of Franchise in thousands
Re: Info for would be franchisers... - [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there. To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1] Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published. I guess the old adage holds true of "it's not who you know, but who knows you" that's important.
how much for a franchise fee? - Dear Colleague There is no easy answer to this question. Things to consider: [list=] The sizeof the Franchise Clent base Expected Turnover Intellectual Property costs (recoup) Number of Franchises Number of employees Original Set up costs Franchise admin costs An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000. Hope that this gives you some idea Take care Ian[/list]


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