Saturday, November 17, 2007

Funding Your Franchise Business

While taking up a franchise may give you a head start on many counts as compared to building a business from scratch, when it comes to financing, you’re faced with the same challenges you would with any start-up. Seeking the help of the franchisor at the outset can open a few doors and ease the pain considerably.

Be prepared to spend as soon as you decide to buy a franchise. At the outset, you may have to pay a franchise fee in return for the right to use their brand and conduct business in a certain territory.

The franchise fee can vary significantly; obviously the better known brands cost a lot more. There could also be a differentiation in fee based on size and location of territory. See if you can negotiate a staggered payment with the franchisor, in proportion to revenue inflows, so that you don’t have to block cash upfront.

Next come real estate and establishment expenses. If you don’t have your own place, you will need to locate something suitable to rent and do it up in accordance with the franchise branding guidelines. Remember, fancy consumer brands will expect conformity with their public image and you have to be prepared to fork out quite a bit. The good news is that there may be a nominated interior design agency that is given the mandate to do up all franchise interiors, and since they may have entered into a long contract with the franchisor, could give you better rates and credit terms.

If your business is product retailing, inventory costs could stretch your resources, especially in the early days when you have to stock up. Some franchisors supply goods on consignment, which means the franchisee need not block funds in inventory – check if that option is available. Alternatively, always be on the lookout for softer credit terms.

These measures will help ease the pressure of initial financing requirements, especially when there is no revenue to balance the outgo. That being said, you will have to arrange for adequate funds to tide your franchise business over the initial two or three years. If you have sufficient resources already, that is the best case scenario. However, if you need to arrange financing from external sources, discuss with the franchisor whether they have a system in place that can make it easier for you. Generally, they will have tied up with a financial institution for giving business loans to new franchisees. Going that route may be a simpler and faster option, than approaching another bank for money.

1 comment:

sumeet d said...

We are professionals in providing franchise/mini mart/multiplex/3-4d cinema/amusement concepts and retail property solutions pan India and also facilitate foreign entry.
Plz contact me,09350159439