Are You Financially Savvy When It Comes To Financing Your Franchise ? Need Some Help?
Information on franchise financing in Canada . What are key considerations for franchising loans when entrepreneurs finance their business
Canadian would be entrepreneurs are very clearly jumping on the franchise 'bandwagon'. Whether they are current entrepreneurs looking to expand their investments and success, or downsized executives clearly there needs not be a lot of discussion on franchising popularity everywhere, and that includes our focus, Canada.
Could any business person, male or female not use some solid advice and mentorship on any one of the many aspects of this industry? We don’t think so, and our focus is on franchise financing in Canada. Simply speaking, achieving the finance and loans you require completing a transaction successfully.
As we said, optimism in franchising in Canada is everywhere, including positive stats on growth and the industry's participation in the economy as a whole.
Does that optimism translate into the availability of capital for financing the business? Let's cover off some key issues around that.
It's important to have a game plan when you enter into a franchise entrepreneurship. Focusing on those objectives in a precision like manner is key.
Is it possible to be familiar with every aspect of franchising that you need to know - we would submit that unless you are in the industry already that is not the case .
A good start might be two fold, first of all talking to a franchise broker or consultant who participates in the industry, and their services by the way are typically no cost to you. They are compensated by the franchisor. Naturally a word of caution is in order because many of these firms align themselves with only certain franchisors, and might not be in a position to expose you to all the opportunities and information you need.
Step two in your initial game plan might well be to talk to those people in our favorite profession, lawyers...! But seriously .. A well versed franchise lawyer will guide you through the pitfalls and legalities of owning your own franchise. The good news here is that the industry is very transparent and a lot of the rules and regulations are heavily focused on protecting you, the franchisee, when it comes to disclosure from your perspective franchisor, etc.
So let’s cover off our promised 4 key information points. Number one is simply that you need to assess the overall risk and return in your investment. While 95% of franchisees success according to many stats, you want to ensure you are not in the other 5%. Here is where you need to spend a decent amount of time on financial prospects, cash flow analysis, and measuring overall chance of success relative to the financial investment you are prepared to make as your equity contribution in the business. Suffice to say that aligning yourself with a successful and well run franchisor sure helps.
That brings us to point # 2 today, the size of your investment .Franchise purchase prices come in all size, from small non asset service based franchises to large ' bricks and mortar ' opportunities such as full service restaurants . Spend a significant amount of time on your equity contribution, where that capital comes from, and the methods under which franchise financing in Canada occurs. They exist, but they are limited.
For instance in the U.S. a large amount of financing in the industry is done under whets known as a 401k rollover, essentially collapsing what we know as our RRSP's in Canada. That doesnt work in Canada, unless you want to be penalized by the tax bit on that one! We don't recommend that to clients as you can imagine.
Point # 3 - Finance options. In Canada there are limited options to finance your purchase, of either an existing resale or a new unit are limited. The good news is that those that exist work. You can work with a specialized franchise finance firm, take advantage of the government BIL program (which finances thousands of franchises) and compliment both of these with additional leasing and working capital scenarios.
Finally, point # 4... and it's a bit of a tricky one. Do you as a franchisee require experience within the industry that you are buying into? To be honest we are not 100% sure on that one ourselves. We all agree it would be helpful to have some background in the industry you are proposing to invest into, however, we have observed over time that solid management and marketing skills go a long way in any business. Even large corporations bring in people from outside their industry, sometimes....!
Don't underestimate the advice and info you can get from a number of sources when considering purchase and finance loans alternatives. Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in this regard. 4 Points ....hopefully well taken!
Stan Prokop - founder of 7 Park Avenue Financial –
http://www.7parkavenuefinancial.
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.
