Financing a franchise in Canada. Does the Canadian entrepreneur have to necessarily feel ' lost ' when it comes to a franchising loan in Canada? We can understand why, but that doesnt have to be the case. Let's dig in.!br>
Right out of the gate it's important to know what type of financing you need to look for, and what's available. At the end of the day typically it's a combination a finance that will include both a term loan and some sort of working capital facility unless you're in an ' all cash ' business, which is often the case in many service and hospitality type franchises.
Question 1 from clients we talk to is the issue of addressing how much they are required to invest in the new business. It goes without saying that your investment is both a must and critical. It shows your commitment to both the franchisor as well as the commercial lender.
Building your equity investment into your initial cash flow forecast is important. It's the combination of owner equity plus financing obtained that allow you to create the all important opening balance sheet and cash flow. This is a document that your bank or commercial finance firm will look at to see how repayment is going to be made.
The franchisee (that's you!) need not feel lost or bewildered when it comes to preparing the financial part of your application. If you don't have expertise in this area the basics can easily be prepared for you by an accountant, business financing advisor, and on some occasion's assistance and input from your franchisor.
Typical franchise term loans are 5-7 years in length. At that time you should typically be in a position to have retired all the debt you've borrowed to buy the business. But don't forget also that along the way you may well be required, or need to, replace assets in your business or generate some level of working capital to cover your cost for inventory, carrying receivables, and normal sale growth scenarios .
Always be prepared to address issues in your financial forecasts. These are sometimes referred to as ' assumptions '. We all of course remember the dangers of ' assuming ' things in business. So be prepared to talk about issues around timing of revenues, profits, costs of assets, growth trajectories, etc.
We hate to drag clients ( kicking and screaming ?) into the world of accounting and finance - but clearly understanding how your repayment , breakeven, profits and cash flow and fixed costs work are somewhat key to your overall success . It's never just ' all about sales'.
Remember also that the majority of franchises you will look at purchasing don't require outside collateral from yourself as the owner that even offering that up to the lender won't make sense if your financial forecasts arent reasonable.
We maintain you don't have to feel lost when it comes to a franchising loan in Canada. That peak performance we have talked about can come about even easier when you seek the services of a trusted, credible and experienced Canadian business financing advisor who can assist you with your franchise financing needs.
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Stan Prokop - founder of 7 Park Avenue Financial – www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 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 :
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