How to Finance a Franchise – Your Options and Risk

Entrepreneurs who wish to purchase a new or existing franchise are always asking us ‘What are my Financing Options?”. The ability to choose the right financing option (in reality it is the right mix of financing options) is one of the most important aspects of your entry into the purchase and running of a successful franchise in Canada.

It is of course very rare that a franchise can be purchased for all cash, as the amounts involved can be very significant. And in fact, as we will demonstrate, in many cases that would actually be the wrong thing to do. Even the largest and most successful corporations in the world take on debt, there is good debt and bad debt of course (as consumers we now that also. By utilizing the right mix of debt and your own equity you can properly ‘leverage’ the business for greater rewards and returns.

We will use a quick and somewhat blatant and unrealistic example just to illustrate our point. Let’s say that you wish to purchase a franchise for 250,000.00, which is certainly not an uncommon amount. You have the option of paying cash for it (lets pretend!), or you can put 10,000.00$ down and borrow the rest. At the end of one year your franchise nets 20,000.00 in net income, let’s assume. If you had only put in 10,000.00$ of your own money you have generated a 200% return on equity. Even Warren Buffet would be jealous of you. However, had you put in 250,000.00$ of our own money you can clearly see you have many years to go before you get a positive return on your significant initial investment.

So whats our bottom line – it’s simply that debt and the right amount of leverage can be a good thing, and it’s an excellent way to measure the potential returns in any business, including your investment into a Canadian franchise.

Let’s return to our core topic, financing your franchise. The reality is that are several options in Canada to finance your purchase. Those options can relate to either a new or existing franchise – both are quite financeable. One of the main reasons you might wish to consider purchasing an existing franchise is that in some cases the track record and the assets in the business might present an easier case for financeability.

Franchise financing in Canada is absolutely a specialized type of financing. When we sit down with clients to evaluate their options d and focus on the quickest and best way to achieve franchise financing success we can summarize your financing options in the following manner –

-Government Small Business Loan – (By far the most common and popular)

-Your own personal equity or down payment (typically from 10-50%)

– Equipment and asset financing

– Working Capital Term Loan

– Operating facility for ongoing requirements

– VTB – (Vendor take back) – in some cases the franchisor or the seller of the current franchise will waive full payment and agree on a final pre agreed upon payment to be made at some point in the future

Whether you consider yourself financially astute, or if you are concerned and worried that you don’t know enough about financing in general, it is strong recommended you align yourself with a trusted, credible and experienced advisor in franchise financing. Understanding your options, picking your options, and executing on those options within your timelines is the key to franchise financing success.

Starting A New Business

The best business ideas often come out of that moment of rebellion when the budding entrepreneur comes to the conclusion that “I could do that better myself”. All those ideas presented to the boss that were never acted upon; colleagues seen to be not pulling their weight but earning the same; watching the profits that are being made from ones efforts heading off in another direction. All these very common scenarios often act as the catalyst to starting a new business.

The great danger is to fall in love with the idea and rush in without thinking it through. This doesn’t mean writing a business plan immediately; important though it is that comes later. The first step is checking on prospective customers, are there enough buyers out there who want the product or service, enough times and at a high enough price to make the idea viable when the bills have been paid.

Five Forces

In short the business idea needs to be seriously challenged. How easy would it be for others to follow and become serious competition? How much competition is there now and how good are they? Is the world changing and the product may no longer be required? Who will be in charge the buyer or the seller? Too much dependence on a small number of big buyers can be very dangerous. Will the business be under the thumb of its suppliers who may be able to impose too many conditions?

 Market Research

If the first hurdle is cleared without mishap it’s time for the research to begin. To look at customers and their needs – who are they, how many are there, where are they?

  • Customer behavior – how much they buy, how often and for how much?
  • Competitors – who are they, where are they, what are their strengths and weaknesses?
  • Costs – what are the direct costs that will occur if a sale takes place and the indirect costs that will be there whether a sales takes place or not?

Armed with this information it’s time to come up with some sales assumptions taking into account businesses tend to start off slowly and build up momentum with increasing sales but often experience peaks and troughs in demand that need to be built into the sales assumptions on a month by month basis.

The Business Plan

The business plan comes next, the narrative that explains the who, where, why, what, when and how of the first year in business. This is accompanied by the financial forecasts in the form of cash flow and projected profit and loss statements.

There are many styles that can be found on the internet but it is important to choose something fit for purpose. The 100 page plan is well over the top for simple one man or woman business but may be absolutely right for the new manufacturing business with plans to create 30 new jobs. There are three good reasons for preparing a detailed business plan:

Is There a Future in Finance as a Career?

There was a time when career counsellors made it to a point telling to all young people that a career in finance was the best for them. The markets were booming, and positions in finance companies were easily available. Business schools had student vying with each other to take up the courses which would enable them to make a career in finance. It was not only the finance market that captivated some students. The economy was so strong, that those who are graduated in finance course were unsuccessful when they opted for financial market or investment bank jobs; they went for alternative careers in industry and commerce jobs that involve accounting. The government also offered middle level jobs in finance, and the overall scenario was very bright.

The economy went into a tail spin.

With the economy in a state of recession, the scope in the financial markets had decreased, and those who are graduates in finance, who thought they had secure jobs in investment banks, were facing the possibility of a pink slip. These banks took the worst hit in the financial market turmoil. It followed almost naturally, that accounting jobs in commerce and industry started shrinking as companies cut costs to keep afloat. At this stage only those who opted for public sector jobs seems reasonably secure, but you’ll never know for how long such a situation would last. The severe downturn in the economy could also affect some jobs.

So just what is the future for such financial sector employment?

It is flying in the face of logic, but in spite of the economic recession, finance jobs still have a reasonably a bright future. Most economists agree that the recession in its present form will not last for a long time. They predict it will last for just a short or medium term. This means that if you are in the finance sector of the economy, have a heart, the outlook will become brighter. So if you have lost your job, this may be only a temporary phase, as better times are coming.

The governments all over the world were coming up with various packages to stimulate the economy. So this means that the huge money going into the various sectors chose for stimuli, will need finance graduates to manage the money. It goes without a saying that the only people with a real brilliant and proven record would land these jobs.

All companies which have been affected by the current economic crisis will give their best to survive as best as they can. They would strategize their survival tactics by hiring financial experts to guide their ship through the less troubled waters. The present gloomy state of affairs is mainly due to financial problems, so they will look for financial experts to tackle the financial woes. They may not state their intentions in such clear terms, but will definitely engage people who are well acquainted with commerce and accounting jobs and ask them to concentrate completely on the cost and revenue aspects of financial operations. This could help the companies get through all the turbulence and crises successfully.

Throughout the recent history, any downturns in the economy have always been followed by a boom. Just wait patiently for the good times to show up once again.

Small Business Ideas for Book Lovers: Start Ups for People Who Love to Read

For people who enjoy reading and didn’t want to work for someone else, becoming a book store owner was a dream come true. Then, the super bookstores came along and independent bookseller after independent bookseller went out of business. Luckily, there are still some small businesses that are a perfect fit for book lovers.

Become a Magazine Publisher

Creating a magazine can be very rewarding for people who love to read. Choosing to focus on parenting or kid related topics gives them a chance to encourage a love of books in future generations. While the magazine industry as a whole is struggling, there are some markets that still do well. Free regional magazines that are completely funded by local business advertising or online magazines that take advantage of the flexibility of online publishing can thrive under the ownership of a determined and creative entrepreneur.

Extroverted Book Lovers Can Become Storytellers

People who love an audience and enjoy reading stories to their children in the voices of different characters may want to look into starting a storyteller or puppeteering business. Storytellers are popular with schools, libraries and after school or summer camp programs. They also may find customers who are throwing parties for their children. It can be a hard field to break into, but those storytellers who are successful enjoy their work.

Online Used Book Sellers Keep Costs Down

While traditional used book stores have almost become a thing of the past, online book stores do well by keeping costs down and doing a high volume of business. Many online booksellers choose to list their books on sites like eBay.com, amazon.com, alibris.com, or half.com to take advantage of the tremendous traffic that these sites bring in.

Personalized Book Small Business Idea

Children love to imagine themselves adventuring with favorite storybook characters. Personalized book sellers can find a company that specializes in printing several different stories personalized with children’s names to sell at craft fairs, school functions, etc. If they enjoy writing, they may want to cut out the middle man and create their own stories. Today’s print on demand options make it simple to create quality books one at a time after customers make the purchase.

Start a Book Related Home Party Business

Usborne is a popular educational book publishing company with a unique business model. Instead of having books stocked on traditional bookstore shelves for a few weeks and having the rest of the print run quickly remaindered, the company chose to use consultants to sell books through home parties, booths at events and directly to educational institutions. Barefoot Books is another children’s book publisher with a similar model.

With a bit of creativity and a willingness to think outside the traditional bookstore box, a book lover can still successfully start and run a small business that appeals to readers. There are several very successful business models available, from selling books online to introducing children to the world of books through a home party business model.

Small Business SWOT Analysis: Help Build the Foundations for Long-term Business Success

A SWOT analysis is an important strategic planning tool for business. It is used to determine internal and external influencing factors that can impact the growth and success of a business. However, before a small business owner clicks away through fear of boredom – read on! Carrying out a SWOT analysis needn’t be boring and full of management speak, instead it can be a fun and highly relevant management tool for even the smallest of businesses.

A SWOT analysis doesn’t require understanding of the latest business management buzzwords or MBA-babble. It simply requires that the small business owner has a good understanding of their own business and the marketplace in which it operates. While it is an important strategic tool, undertaking a SWOT analysis is a creative process. It should not simply be a case of stating the obvious, instead it is the opportunity to think creatively about a business and its future direction.

What Is a SWOT Analysis?

A SWOT analysis takes a look at the Strengths, Weaknesses, Opportunities and Threats that face a business. The whole SWOT theory works on the principle of balance. This means that every strength has a corresponding weakness and that every opportunity has a corresponding threat and visa versa.

As an example of this, a small company may recognize that one of the biggest strengths of the company is its staff (this is particularly important with single person businesses). The threat, therefore, would be that something happened to key staff that stopped them from performing. An opportunity might be a new market opportunity opening up and the threat might be that someone else also sees this opportunity and enters the market.

How to Undertake a SWOT Analysis

There are several ways to undertake a SWOT analysis, however the principle is always the same, and that is to draw up a grid with four squares, each with one of the headings from strength, weakness, opportunity or threat.

It is then simply a case of writing in as many different features as possible. At the end of the exercise all the different points should be checked to make sure that there is corresponding positive or negative point for every point raised. A discussion about the exercise might be useful at this point.

Tips for Running a Successful SWOT exercise

Here are some tips to run a a successful SWOT analysis exercise:

  • Make it fun! – The more interesting and fun the exercise is, the more likely it is that people will join in with enthusiasm.
  • Encourage debate – Full and frank discussion can be useful when discussing different aspects of a business. It is important, however, that people can do this in a positive way.
  • Set a time limit – Setting a time limit on any management exercise is important as this helps to keep the discussions on track and avoids people going off on a tangent.

What Happens Next?

A SWOT analysis on its own won’t help a business. The next step is where things start to get interesting and that is when the SWOT study is incorporated into a business plan. Even if this is done informally it is imperative that an action plan of some description is drawn up – otherwise all these important thoughts will go to waste!

Cash Flow in a Bad Economy: Securing Your Bank Accounts and Small Business Loans

The following is a guest post to SD Bankruptcy from Patrick G. Mackaronis. Patrick is the Director of Business Development for New York City-based social network Brabble. In this post, Patrick dives into the delicate topic of cash flow in a rough economy, and how to secure bank accounts and small business loans from being threatened as a result.

As a small business owner, one of your top concerns right now may be your bank. Not only are entrepreneurs worried about business and personal bank accounts in an volatile economy, but there is a big concern about the availability of small business loans that may be needed to keep the company going while customers are tightening their belts as they adjust their own budgets.

Sandy Baruah, Acting Administrator of the U.S. Small Business Administration, said in an interview with MSNBC that the most important thing right now is to “reaffirm your relationship with your financial institution”. Mr. Baruah went on to say that private institutions reduce their risks with small business loans backed by the SBA as these loans are guaranteed up to 85%.

Assess Stability of Your Local Financial Institutions

While experts agree that the best chance of securing small business loans in this economic climate is your local banker, you can take steps to identify the best local bank to approach. The Federal Financial Institutions Examination Council website allows you to view your local FDIC-covered institution’s call report. The total risk-based capital ratio is found on schedule RC-R. A bank with a higher ratio is better capitalized, and therefore may be more approachable to consider a small business loan, or a SBA-backed loan.

FDIC deposit insurance has been raised by Congress from $100,000 to $250,000 per depositor. If your bank has a low ratio, you may want to investigate moving funds over $250,000 to another financial institution.

The Federal Deposit Insurance Corporation offers up-to-date information on the stability of the banking system in the United States, allowing you to make educated decisions on your business accounts.

Be Prepared to Ask for a Small Business Loan

If you find yourself in the position of looking for credit, you will greatly benefit by having laid the groundwork and being able to show your lender you have taken steps to protect your business from the impact of an economic downturn:

  • The first requirement for a business loan during an economic downturn is a solid business plan with an up-to-date financial statement. As your projected income and expenses change, your business plan should be adjusted to reflect the current circumstances.
  • Monitor your business credit profile as it highlights how other businesses see you. Your friendly banker may not be the final decision maker in a small business loan.
  • Show that you have taken steps to be proactive in collecting customer debt to improve your cash flow.

Armed with these basic business financial strategies, you are now free to concentrate on other areas of keeping the door open for business.

Use Free Expense Report Templates for Small Business Bookkeeping

The use of expense report templates is an efficient means of streamlining and standardizing the process of reporting business expenses. These templates can be easily downloaded from the Internet, and either customized to fit with a unique business model, or used as-is immediately. Some templates can even be integrated into a company’s internal website, and used for online expense reporting.

 Downloading Expense Report Templates

 Downloading expense report templates is very simple. Many templates are available, including:

  • Templates for reporting local business expenses, such as a business lunch.
  • Templates to report travel expenses- these are typically more elaborate, and include mileage reporting areas.
  • General templates for reporting any work-related expenses, including all of the above.

Example: In order to download this Business Travel Expense Log, follow the link, and click on the “Download” button.

http:/office.microsoft.com/en-us/templates/TC103347301033.aspx?pid=CT101440991033

Cookies must be enabled on the destination computer, and the Microsoft Service Agreement must be accepted prior to download. Once this has been accomplished, the form will save to the destination computer, and can then be accessed.

Tracking Expenses with Online Templates

Tracking business expenses with online templates improves speed of reporting as well as reducing errors. In order to allow employees to report expenses online, a template can be made available on the company intranet, or private internal website, in one of two ways.

  • Fill-in the blank template script to be submitted automatically online. This type of template will need to be created by the site’s webdesigner. Once available, the employee can fill in the blanks in an online worksheet, and submit the form for immediate delivery to the accounting department.
  • Online download of the template file for the employee to print out and fill in, or fill in online. This option simply offers the template file, typically an .xls, or Microsoft Excel file, for download to the employee’s computer.

Modification of Excel Templates

  • Modifying a template created in Microsoft Excel can be accomplished by editing the worksheet. Basic edits include the following:
  • Click and drag to expand the size of rows or columns
  • Right-click to select a row, column, or cell to delete or change
  • Select “Format Cell” to make changes within a selected cell, including entering or changing text
  • Right-click on the letters or numbers to select and add or delete rows or columns

After adding or removing columns, rows, or cells, updating information labels or entering expense information, save the template under a new name. This will prevent the updates from being lost during subsequent downloads or modifications.

 Templates in Small Business Bookkeeping

 Templates are a great way to simplify accounting processes, as well as to ensure that all information is provided in expense reports. They can even be modified to fit a business, and provided to employees online for quicker submission. The versatility of expense report templates makes them a good choice for small business bookkeeping.