Is There A Secret To Buying A Franchise Business When It Comes To Franchising Loans And Cost?

Financing Your Canadian Franchise Opportunity


OVERVIEW – Information on franchising loans in Canada. Factors critical to franchise cost and finance when buying a business opportunity in the franchise industry



Buying a franchise business in Canada. Talk about a commitment that requires a combination of logic, perhaps some luck, and some common sense around the type can cost of franchising loans.

Franchising is so popular today that opportunities are available at every price point, and with that comes varying costs - from a few thousand dollars of investment required... all the way up to Million dollars ++.

As consumers we certainly don't buy thing we can't afford, and that logic should clearly be carried over when it comes to a franchise purchase. Notwithstanding the fact that franchising loans and financing are available to those that qualify it becomes a question of risk, return on capital, and your ability to make an equity contribution to the business venture.

Having both a realistic business plan that properly shows cash outflows and inflows at the start of the business is critical. And quite frankly that’s the same methodology and logic you would use to acquire any other business, franchise or not! Being able to demonstrate a realistic profit and cash flow to your lender is always critical.

What are then some of the key factors that come into the financial aspect of the purchase? (We’re going to assume you are over the hump when it comes to all the emotional aspects!)

Every business purchaser assesses the cost of buying a franchise business when it comes to return on your initial investment. We constantly hear that an investment in the franchise industry requires a major investment of time when it comes to ' who's minding the store ‘. So don't forget to factor in both the cost of the franchise as well as the amount of time and expertise you have to invest to make the business successful and grow.

Part of the franchising cost is of course the initial franchise fee. In general that fee is not financeable, and is often shown as ' Goodwill ' on your balance sheet. So more often than not we advise clients that they need to cover off the franchise initial fee as part of their initial equity investment into the business.

Franchise royalties vary in Canada - they typically seem to be in the 6-8% range and need to be carefully factored into your busines plan and cash flows as they significantly impact cash flow and profits.

Timing. There isn't a day when we don't speak to a potential franchisee that needs to have his or her financing arranged - yesterday! You need to be in a position to allow for a reasonable amount of time to put your whole financing plan and package/strategy together. Working in panic mode with a lender basically ... never works!

Franchisees address the opportunity to own their own business in a number of ways. Some actually end up paying cash, some choose a partner, and larger opportunities actually have the ability to acquire an equity investor. Is any one of these better than the other? Not really, although we would add that paying full cash for your purchase certainly depletes personal equity and net worth. By incorporating your business and financing it properly you are clearly addressing the issue of matching risk and liability properly.

Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with a proper strategy for the cost and type of franchising loans and finance you need to be successful.

7 PARK AVENUE FINANCIAL
CANADIAN FRANCHISE FINANCING EXPERTISE

Stan Prokop - founder of 7 Park Avenue Financial –

http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details :

http://www.7parkavenuefinancial.com/franchising_loans_franchise_cost_buying_business.html

How to Protect your franchise investment with smart financing options when you buy a franchise

It was, or will be an easy simple decision right? We're talking about the minor issue of your decision to purchase a franchise.

We're just kidding of course, because we know the franchise investment you make when you buy a franchise is one of the larger decisions you'll make in your life. And we clearly recognize the franchise cost of that investment is never a small one. So we are thinking you want to do it right?!

You can protect your franchise purchase by financing it properly. You want to be in a position to satisfy yourself, and your lender that you have the right amount of debt (I.E. loans, etc) and equity into your transaction.

It seems that it’s always about the money, and that was probably one of the concerns you had when you made the decision to purchase a business via the franchise industry. You recognized it was a potentially great way to build wealth and equity, but wondered where start up capital would come from.

The reality is that start up capital for your franchise investment comes from two sources, yourself, and one or two other lenders who specialize in franchise financing. Actually a large majority of franchises in Canada are financed under a government program that is technically called the BIL/CSBF program. Bar none it is the best financing deal in Canada for any new business, and franchisees have flocked to it for years. More about that program and how you can achieve success via it later...

We can’t over emphasize that one of the key factors for franchise approval, under our above noted program, and others is simply that you require a decent personal credit history. Without getting to technical we can simply say that means that you have historically paid your bills, not been bankrupt, and aren't over borrowing in your personal life. Enough said about that. When we meet with clients looking for franchise financing this is one of the first areas that we (delicately!) explore.

But clients want to know why this is such a key factor, and its simply because the reality is that a franchise is , no matter how you look at it, a small business start up, and lenders look at how you run your personal life as a mirror as to how you will run your business .

Planning - that’s the keys secret in financing a franchise investment you are going to make and ensuring the franchise cost of that decision is properly financed. You do this in a variety of ways, one of which is documenting your purchase and plans via a properly prepared business plan. This document should highlight yourself, your business experience, and show the financial fundamentals of your business, i.e. Cash flow, ability to repay your loans, what the opening balance sheet will look like, etc.

We clearly realize that not all our clients have the financials skills, background and ability to prepare such a document, let alone present it. That’s why it’s a good reason to consult a Canadian business financing advisor or expert who is credible, experienced and trustworthy and an expert in franchise finance in Canada.

We also remind you that step one when you buy a franchise is financing it - step 2 is making sure that you have a plan around how you will grow your business while having enough working capital to run it.

In Canada franchise cost is financed via the Government BIL program we noted - The borrowing limit is 350k, and we have found that this financing can be supplemented with equipment and lease financing for certain assets of the business . Those two strategies, coupled with your own investment of funds will get you to the goal line.

Speak to that ' in the know' advisor we talked about and you should not have any worries in your ability to finance and buy a franchise.

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Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 50 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :

http://www.7parkavenuefinancial.com/buy_a_franchise_cost_franchise_investment.html

How to Succeed When buying a franchise store and financing its cost

It's a road you want to go down successfully. We're talking about your decision on buying a franchise in Canada, financing the franchise cost and being successful in the franchise store or business you have chosen.

Clients always ask us if it’s ' risky ' to buy a franchise. Our answer is somewhat facetious, in that if a franchise fails, we prefer to have someone to blame - that's you, the franchisor, or your franchise lender. It's rarely the lender, leaving you and the franchisor.

The reality is quite frankly the same as if you were acquiring any business, namely, Do your homework! And invest some time in solid due diligence. Make a good decision around who you are going to do business with.

After selecting a franchise opportunity the challenge of financing the business becomes even more bewildering to some of our clients. Let’s share some solid tips, info and suggestions around the successful financing of your franchise cost.

We often focus solely around your own financing challenge when buying a franchise ; we should add that its just as important to spend some time on understanding the general financing situation around the partnership you are about to enter into with your franchisor . Disclosure documents these days are fairly heavily weighted towards you as the franchisee understanding that you are entering into business with, so we encourage all clients to take a strong look at your franchisors profitability, its financial management, and any items of public record that might hint or portend of future problems.

Unfortunately many franchisees we talk to about franchise cost and how we will finance the franchise are under the misconception that there is 100% financing available for your new business. In Canada that is pretty well never the case, and you need to make a strong assessment of the maximum amount you can contribute to the venture from a personal equity basis. If you borrow too much and put too little in the financial folks call that being ' over leveraged'- therefore any little bumps in the economy or your ability to generate sales becomes a huge problem if you aren’t properly capitalized.

And we already know you next question, which is ' how much do I have to put in ‘. We would prefer to give you a clear final answer on that one, such as xx %, but the reality is that your own investment is tied to a couple factors... the size of the financing you require, how you will finance it, and whether initial ratio analysis will show that you meet all qualifications .

A ratio is just a ' relationship' of numbers. The two key ratios that you need to focus on in franchise financing are debt to equity, and working capital. Typically you want to have only two times more debt than your personal investment in the business, and from a working capital point of view you want to ensure you have liquid assets to cover at a minimum short term payables.

Do franchisors offer loan assistance - the answer is yes... and no. By that we mean simply that many franchisors have developed relationships with Canadian business financing advisors who assist franchisees in finalizing all aspects of the franchise cost financing - including business plan preparation, negotiations, sourcing debt, etc. You should rarely, if ever, expect the franchisor to supply direct loan financing assistance - they are selling franchises, not building a financial empire.

In Canada typical methods of financing a franchise are a BIL loan, a working capital term loan, and equpment leasing and financing.

Speak to a trusted, credible and experienced business financing advisor who will work with you to successfully finance your franchise store in a minimum amount of time with a maximum mount of success!
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Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 50 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :

http://www.7parkavenuefinancial.com/buying_a_franchise_store_franchise_cost.html

How The Right Franchise Financing Will Successfully Solve Your Franchise Cost Challenge !

You have selected, or are selecting a Canadian franchise. You're down to those two last seemingly minor questions - how much does the franchise cost, and what franchise financing is available! Pardon our questions, but those are hardly minor points.

Franchise opportunities in Canada seem unlimited these days as the industry continues to grow and grow. A huge portion of the Canadian economy is services by franchisors and their franchisees in Canada.

There is no one method that serves all you’re financing needs for your new proposed business. However several tried and true methods of financing are utilized successfully everyday in Canada; let’s explore some of those methods and hopefully provide you with tips, strategies and tactics to successfully complete you business acquisition. In most cases you will be buying, or building a franchise with your franchisor partner, in some instances you are negotiating with an existing franchisee to purchase their business. Both of these scenarios are financed differently.

In the case of purchasing an existing franchise a more formulaic approach is available to you. The basic process involves negotiating a fair price around the business, validating the financial statements of the owner, and, more often than not, obtaining an appraisal of any of the hard assets and leaseholds of the business. The appraisal value is a key point in your overall financing strategy. We also caution business clients to take some time to ' normalize' the financial statements of the existing business. This is what even sophisticated financial analysts do when they are looking at a merger or acquisition type scenario. The process simply involves taking a look at all the costs and expenses and eliminating those that might not be relevant as you move the new business forward.

Quick example on the above: Previous owner is taking 80,000.00 out in salary; you feel you can continue with a 50k salary - that obviously allows you to put 30k of profit and cash flow back into your business assumptions. You might well want to utilize the services of a trusted, credible and experienced financial advisor who can assist you in this area if you are a non- financial type!

The most common method of financing a franchise in Canada, existing or new, is a BIL .Great says our clients, now what is that?! It’s the technical name for the Canadian governments Small Business Financing program, and it provides up to 350k in financing for your business. Sounds great, right?

The challenge our clients face is typically understanding the criteria of the program , how it works, what information and back up is required to process a financing, and what other types of financing might compliment this proven and popular strategy. (We have found equipment financing or leasing to be a great add on complement to the government loan strategy)

Franchise financing around the franchise cost should not be viewed as coming from your franchisor, they are in the business of building their empire, not financing yours! That is a common misconception among clients.

However, in the case of purchasing an existing franchise you may well want to negotiate at least a nominal (or greater if you can!) vendor take back to compliment the overall financing. It’s a great strategy that motivates you and the current franchisee to work together to continue the success of the business.

Our final point and tip around franchise cost is clearly to assess what your own investment will be in the business. Typically franchise lenders are looking to get a very reasonable owner equity or down payment on the transaction, which is of course relative to the size of the business you are buying or starting.

Speak to a trusted Canadian business financing advisor to ensure you have a clear strategy and a solid plan to finance your entrepreneurial vision.

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Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :
http://www.7parkavenuefinancial.com/franchise_financing_franchise_cost.html

How You Can Address Franchise Cost and Franchise Financing In Canada

It is of course, understandable that franchise cost and franchise financing can be two major challenges, or worries, that you face when you make the decision to be an entrepreneur in the franchise environment. Let’s look at how you can address some of those issues and concerns with information that will assist you in making an overall solid franchise investment decision.

Franchise financing and franchise cost should never be put near the end of your decision making process. You should address those key areas up front and be armed with the right information on how the industry finances a franchise.Many clients, somewhat mistakenly, think they will receive franchise financing assistance, or even the financing itself from their franchisor. Nothing could be further from the truth – you should simply focus on the fact that the franchisor is in business to sell units and grow their business, not put capital into your venture. That being said we hasten to say that almost all franchisors can be a valuable tool in the franchise finance arena in a number of ways.

So how can you use the franchisor itself as a tool for your financial planning around your venture? Follow a couple basic rules – review the franchise disclosure documents carefully for any financial data that will help you make a better financial decision. Also, ask for franchisee testimonial and contact info – if possible talk to some franchisees in the chain and ask them about their finance strategy hen they acquired the business. Also cover off if the financial expectations they had around the business in fact materialized.In some cases your franchise lender may wish to obtain info on the franchisor and their overall financial status. This generally is not required with well known brands.

In the challenging economic environment we are currently in it is important to deal with an expert to ensure you have the right financial strategy in place – your lawyer or accountant might be familiar with a franchise financing expert in Canada who can more quickly assist you.

In order to finance a franchise successfully in Canada we recommend to all clients that you have an appropriate mix of debt and equity – equity is of course the funds you put into the business yourself, and debt is the franchise financing itself . Typically we see clients putting anywhere from 10-50% of the franchise cost in as owner equity. This varies per type of business, and whether the business is somewhat asset based or service based.

You need a business plan and financial projection! We can’t be clearer than that. This valuable tool serves a number of purposes – it shows the lender you have thought out the ‘ financial ‘ aspects of your business – and quite frankly it should solidify in your own mind that you have a solid business opportunity . Carefull attention to revenue projections, costs, and debt servicing should all be a part of that plan. Typically you should have the plan prepared by a professional and we don’t think you should pay more than 750-1000$ for a decent plan.Don’t spend thousands on a business plan – that’s a waste of money in our opinion.

So how is the franchise cost financed in Canada? As we said the key component is your own personal investment .After that a huge majority of franchises in Canada are financed under a special government program that is technically called the BIL or CSBF program .Most clients typically refer to the program as the Government Small Business Loan. Ensure you are aware of the requirements and that you can meet the requirements. It is recommended you speak to a trusted, credible and experienced advisor in this area who often can help you put together your package, guarantee that you meet the requirement and at the same time work with you, the lender, and the franchisor to accomplish every ones goal – which is of course – getting you approved for franchise financing !

It is rare that one financing will cover all your total financing. Many of our clients that require some form of asset financing with their franchise investment utilize an equipment leasing or equipment financing option. This makes sense from a variety of reasons – it spreads out your credit so you aren’t concentrated with one lender, it is easier to get approved, and you can use the government loan to cover a lot of the leasehold costs that otherwise might not be able to be financed .

In franchise financing you should categorize your financing needs in three areas – soft costs, hard asset costs, leaseholds. Soft costs might be things such as the franchise fee, hard costs might be signage or POS computers and software, and leaseholds might be painting, pluming, air conditioning, etc.It is absolutely critical to segregate these into separate categories and ensure you have a financing strategy in place for each one. You do not want to finance all your hard assets via the government loan and then find out you can’t get leasehold financing from anyone else.

So whats our bottom line in franchise cost and franchise financing. Its simply do your homework, solicit the help of a franchise finance expert, prepare a solid business plan and segregate your costs so that you can finance them in the right manner. Completing all that should put you in a perfect position to execute on your franchise ownership dream.

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http://www.7parkavenuefinancial.com/franchise_cost_franchise_financing.html