Franchising is generally regarded as a less risky way of setting up in business than if you were to start your own independent business. Although, as with any business opportunity, there are still risks. It is essential that anyone considering investing in a franchise thoroughly researches the market and takes appropriate professional advice. The banks’ Franchise Departments are able to provide general guidance about franchise opportunities. They will also be able to assist you to carefully assess whether franchising will be the right option for you, what questions you should be asking a franchisor and help to get your business started.

Banks will require a business plan to set up a bank account and consider financial support for your business. Any lender will want you to demonstrate that you understand your chosen market and that you will be able to meet the financial commitment you are taking on. Banks will be able to provide a business plan template detailing what information should be included in the document. Some franchisors will support you in developing an effective business plan.

The business plan should be punchy and a common mistake is to make it too detailed. Ensure that it grabs the Bank Manager’s interest. Presentation of the plan is important to create a positive impression and you should practice delivery of your plan beforehand so that you come across professionally. Let the Bank Manager have a copy of your business plan in advance so they can prepare for the meeting. Expect your plan to be challenged and you should be able to confidently answer questions about the operational and financial aspects of your plan.

It is often assumed that a business plan is needed just to secure funding. While this is an important benefit of producing a business plan it can also assist with the management of the business such as monitoring the ongoing performance against the original benchmarks and identifying areas for development. The plan is a working document and should be regularly reviewed and updated as the business develops.

A business plan should cover the following areas:

  • Executive summary
  • Personal details (contact details, age, marital status, dependants)
  • Franchise owner’s experience, skills and attributes
  • Objectives/mission statement
  • Overview of the franchise
  • Local market (research, location, customers, competitors)
  • Business operation (premises, IT, vehicles, equipment)
  • Key personnel/management team
  • Marketing strategy
  • Borrowing requirements
  • Capital stake and security
  • Personal assets, liabilities, income and expenditure statement
  • Financial projections (cash flow and profit and loss forecasts)
  • Financial assumptions
  • Three years financial accounts (existing businesses only)
  • SWOT analysis (Strengths, Weaknesses, Opportunities, Threats)
  • Exit strategy

When looking to finance your franchise business, it is best to approach a franchise specialist bank. The banks’ Franchise Departments regularly evaluate franchises and monitor the ongoing performance of franchise owners.

Preferential terms are often available from these banks, particularly for well-established and proven franchise opportunities. Banks without franchise units tend to treat franchises the same as a new independent start-up business.

The level of finance available from a franchise specialist bank will depend upon the strength of the franchise system as well as your business plan. Typically for well-established franchises the bank will lend up to 70 per cent of the total set up costs including working capital. For newer, less proven franchise systems, the amount of finance available may be reduced. The bank will probably require security for the loan, which commonly will be a legal charge over a residential property with sufficient equity.

Don’t be put off if you haven’t got any security to offer the bank. The Government backed Enterprise Finance Guarantee Scheme may be available for those who have a strong business proposal, but who lack security that the banks usually require. Speak to the bank’s Franchise Unit to discuss whether you qualify for finance under this scheme. Advice is also available on other financing options for your business such as Asset Finance, Leasing and Debtor Finance.

The bank manager may take a few days to review your plan and financial requirements. They may need to obtain sanction for the requested funds from the bank’s Credit Department.

Once the lending has been sanctioned, the Bank Manager should set out in writing the terms of the agreed finance including the costs. If you wish to proceed, then confirm your acceptance of the bank’s terms and the Bank Manager can prepare the documentation and security arrangements. You should be aware that it is likely to take several weeks to complete the security requirements.

Work closely with the Bank Manager to ensure that there are no delays in releasing the funds and for you to attend the franchisor’s initial training course.

It is sensible to have sufficient capital to cover projected expenses for at least six months. Have a contingency reserve fund to fall back on in case the business takes longer to get off the ground than you have anticipated.

Some banks like franchising as you are investing in a tried, tested and proven business model with initial training and ongoing support from the franchisor.

Finance is readily available at preferential terms for franchise investment from banks that have specialist Franchise Departments, such as the Lloyds Banking Group. Come and talk to our trained Franchise Managers at our business planning kiosk at the major franchise exhibitions.