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What Every Entrepreneur Should Know About How To Finance A Franchise In Canada – Financing Your Investment

Guest post by: Stan Prokop

Article Overview: Information on how to finance a franchise in Canada . Best methods for financing your entrepreneurial decision in this business investment.

What Every Entrepreneur Should Know About How To Finance A Franchise In Canada – Financing Your Investment

It tends to start with the franchisee fee itself, but there are a number of other financing challenges that come into play when the Canadian entrepreneur is faced with the basic question - ' hot to finance a franchise ' in the Canadian marketplace. Financing one of the most important business investments you'll make can be a challenge - so let’s identify some key issues, tips, and strategies on being successful in this challenge.



A solid way to look at finance success in your franchising ' adventure' is to break down your estimated costs into several key areas. Most potential franchisees don’t realize that each key aspect of your franchise purchase is financed in a different manner.



Lets breakdown the key elements of a franchise investment. They include the franchise fee itself, which we have already referred to. Other components usually equipment you may need, leasehold improvements to any new facility, potentially real estate , as well as the often forgotten but as important on going working capital .



Our experience is that the franchisee typically in Canada has to cover the franchisee fee him or her self. That then leaves our other components to address. So is financing a franchise in Canada a challenge ?In some respects it has the same challenges as if you were opening any new business from scratch - however, the good news is that the financing industry as a whole tends to view franchises positively because franchisors, when successful, have proven brands, track records, etc .. in general they are considered, we think, a lower risk that many other ' start ups'



We sometimes forget to mention to clients the possibility that they may be in fact purchasing an existing unit from the franchisor - that typically involves buying a company or corporate location that the franchisor wants to sell, or, in some cases purchasing a franchise from an existing franchisee who is motivated to sell for whatever reason. Bottom line, both new and existing franchises and be financed.



We are quite sure that when most franchisees consider how to finance a franchise investment they think that financing might in fact come from a Canadian chartered bank. Well, here’s the facts on that one... it does... and it doesnt. While it is somewhat rare that your bank would directly finance 100% of you franchisee needs under a normal term loan scenario the banks do play a key role in franchising in Canada.



How? They do it under the auspices of the Canadian BIL/CSBF program which offers a competitive term loan for Canadian franchisees under the umbrella of this program. The benefits of that program are significant - they include financing up to $, 350,000.00 as well as a low personal guarantee. Rates are excellent, and terms are flexible. Criteria for the program essentially are a decent personal credit history of the prospective franchisee, as well as a respectable owner investment into the business.



Whats respectable?! We knew that question was coming next. Typically to be successfully anywhere from 10-40% investment is required by you as the franchisee. While one commercial finance firm in Canada dominates franchise financing individual franchisees can compliment financing needs with equpment financing, lines of credit']);"> business lines of credit , business credit cards, and the increasingly popular merchant advance loans for retail oriented businesses.





Both having a finance plan and knowing how to execute on your plan are what will make you successful when you are faced with today’s questions ' how to finance a franchise ' ... Speak to a trusted , credible and experienced Canadian business financing advisor for help and tips you need to be successful as a franchisee entrepreneur in Canada .

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Article Tags: financing, how to finance a franchise, investment



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Which kind of industries are you interested in? - Ecological or E-business or Investment or Finance or Management or Non-Profit or Retailer or others.
canada resources - I used to have a connection to a franchise consultant in Canada at "Franchise Officer" in Toronto. I wish I could remember his name ( but I can check my files at the office tomorrow). Anyway, he had a lot of connections to banks in Canada. He may know of them and may be able to offer some feedback. If you are looking for a business loan, Canada has similar business loan programs to that of the USA's Small Business Administration (SBA). I think its SLBS in Cananda, and I probably have the list of it's lenders in my office also. Do you think either can be helpful? If so, I can get back to you with this information tomorrow. Let me know!
How to valuate a business - Hi Garth - here is how we did it at Northern Crown Capital when I was helping them raise venture capital for Toronto-based entrepreneurs. Assume the start date is 2003 so 2008 projections are 5 years out: How Northern Crown Capital Valuates a Business 2008 Financial Projections Earnings Before Tax $5,865,000 Tax Rate 42% Taxes $2,463,300 Net Earnings $3,401,700 Amount Seeking to Raise Today $3,500,000 Discounted Value of Future Opportunity, 5 Years Out 2008 P/E Ratio 15 Value of Company in 2008 $51,025,500 Discount Rate Applied 30% Year 2008 $51,025,500 Year 2007 $35,717,850 Year 2006 $25,002,495 Year 2005 $17,501,747 Year 2004 $12,251,223 Value of Company at Investment in 2003 $12,251,223 Less: Investment Amount $3,500,000 Present Value $8,751,223 Discount for Risk & Private Company 40% Less: Discount for Risk & Private Company $3,500,489 Private Company Value $5,250,734 Present Value (What the Owner Keeps) $5,250,734 60.00% Financing (What the Investor Gets) $3,500,000 40.00% Total $8,750,734 100.00% I hope this helps!
Re: Finance is the primary requirement of business - [quote="rauljoseph":36x8dadn]Finance is very important in a business. It is all about managing the business' money and other assets. Finance includes the study and analysis of processes, financial institutions, markets and instruments that are involved in the transfer of money or anything that has a monetary value among consumers, businesses and government.[/quote:36x8dadn] Good point. I'll just add that if I was going into business for myself and could only have one skill it would be Sales & Marketing. You need to be able to create customers first and foremost. Finance is more of a support function for entrepreneurs.
Finance is the primary requirement of business - Finance is very important in a business. It is all about managing the business' money and other assets. Finance includes the study and analysis of processes, financial institutions, markets and instruments that are involved in the transfer of money or anything that has a monetary value among consumers, businesses and government.


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