How to Succeed When Buying a Franchise Store and Financing Its Cost

It’s a road you want to go down successfully. We’re talking about your decision on buying a franchise in Canada, financing the franchise cost and being successful in the franchise store or business you have chosen.

Clients always ask us if it’s ‘ risky ‘ to buy a franchise. Our answer is somewhat facetious, in that if a franchise fails, we prefer to have someone to blame – that’s you, the franchisor, or your franchise lender. It’s rarely the lender, leaving you and the franchisor.

The reality is quite frankly the same as if you were acquiring any business, namely, Do your homework! And invest some time in solid due diligence. Make a good decision around who you are going to do business with.

After selecting a franchise opportunity the challenge of financing the business becomes even more bewildering to some of our clients. Let’s share some solid tips, info and suggestions around the successful financing of your franchise cost.

We often focus solely around your own financing challenge when buying a franchise; we should add that its just as important to spend some time on understanding the general financing situation around the partnership you are about to enter into with your franchisor. Disclosure documents these days are fairly heavily weighted towards you as the franchisee understanding that you are entering into business with, so we encourage all clients to take a strong look at your franchisors profitability, its financial management, and any items of public record that might hint or portend of future problems.

Unfortunately many franchisees we talk to about franchise cost and how we will finance the franchise are under the misconception that there is 100% financing available for your new business. In Canada that is pretty well never the case, and you need to make a strong assessment of the maximum amount you can contribute to the venture from a personal equity basis. If you borrow too much and put too little in the financial folks call that being ‘ over leveraged’- therefore any little bumps in the economy or your ability to generate sales becomes a huge problem if you aren’t properly capitalized.

And we already know you next question, which is ‘ how much do I have to put in ‘. We would prefer to give you a clear final answer on that one, such as xx %, but the reality is that your own investment is tied to a couple factors… the size of the financing you require, how you will finance it, and whether initial ratio analysis will show that you meet all qualifications.

A ratio is just a ‘ relationship’ of numbers. The two key ratios that you need to focus on in franchise financing are debt to equity, and working capital. Typically you want to have only two times more debt than your personal investment in the business, and from a working capital point of view you want to ensure you have liquid assets to cover at a minimum short term payables.

Do franchisors offer loan assistance – the answer is yes… and no. By that we mean simply that many franchisors have developed relationships with Canadian business financing advisors who assist franchisees in finalizing all aspects of the franchise cost financing – including business plan preparation, negotiations, sourcing debt, etc. You should rarely, if ever, expect the franchisor to supply direct loan financing assistance – they are selling franchises, not building a financial empire.

In Canada typical methods of financing a franchise are a BIL loan, a working capital term loan, and equpment leasing and financing.

How To Leverage SRED (SR and ED) Tax Credit Financing And Factoring for Cash Flow

Leveraging your SRED (SR&ED) Tax credit via the financing and factoring of your claim is a responsible way to maximize cash flow and working capital. It’s all about timing, and if your firm requires additional working capital financing the ability to cash flow or discount your claim for working capital today is a clear and viable option.

Canadian business owners that partake of the program in Canada clearly have recognized the benefits of research and furthering their competitive position in product and services. Although tens of thousands of firm take advantage of the program we are always amazed at the number of our clients that either have not heard of the program, much less take advantage of it.

Let’s do a short primer on the program, and more importantly, the financing aspects of your claim. And trust us, we are not talking about going to your chartered bank for that financing, as this type of financing is somewhat boutique and niche requires specialized financing and financing assistance.

The federal SRED program is s of course for private companies that qualify for a non repayable tax credit, in effect a grant from the government for a large percentage of their R&D spending. Your ability to recover that cash flow is of course a very positive aspect, but, the ability to finance your claim as soon as it is filed, ( in some cases before ) simply is one more alternative in today’s challenging cash flow environment to monetize a short term asset and turn it into cash flow.

So how does SRED (Sr&Ed) tax credit financing and factoring work? We use the term factoring because its becoming more broadly understood and accepted in Canada – so what we are simply saying is that your SRED (sr&Ed) claim is in effect a receivable, and in the same manner that you would consider financing a receivable is really the same logic and methodology around a SRED financing.

Is it difficult to finance a Sr&Ed? We keep that explanation to our clients very simple. If you have a SRED that has been prepared by a qualified consultant or accountant and your company has viability then your claim is finance-able. Is that complex, we don’t think so.

Have you ever applied for any type of business financing before? What was involved? – Typically it was filling out an application, providing back up documentation, and clarifying, if required to a business lender, any information that required explanation. Guess what, that’s the SRED process also.

A claim can be financed in a matter of weeks, which we think is a very typical time for any type of business financing these days. After a basic business application and review of your SRED a term sheet is issued. Typically the main collateral for the financing is of course the SRED claim itself. In Canada its typical to receive about 70% LTV for your claim, meaning that if you calim is 300k you would receive immediate financing for 70% of that amount. Whats the monthly payment clients ask? Here’s the good news, there is none. You put that cash flow to work and when your claim is finalized, adjudicated and paid by Ottawa then you receive the other 30% of your claim, minus of course the financing costs, which typically are in the 1. 5 -2% range per month.

Guess What Your Business Needs? Working Capital and Small Business Finance Loan/Loans Options

Just picture your firm having access to all the working capital you need. Seem impossible? Not really… if you have a solid understanding of your options and your firms capability of qualifying or executing on those options.

Whether you’re the largest corporation in Canada or a small new start up (and everything in between) your business needs working capital. In Canada small business financing loans and financing arraignments for working capital are limited to a handful of possibilities – but being aware of what they are and qualifying for them could be the solution to your constant focus on cash flow via some sort of working capital loan.

It is probably easier than you think to ensure you are addressing the cash flow challenge correctly – where it gets somewhat ‘ thorny ‘ is matching a solution to the problem or locating an expert that can provide you with the business financing assistance you need.

Two key elements of your first step working capital assessment are your gross margins and your turnover. That’s the big problem we have with text book / academic solutions to working capital – they point you to the text book calculation – give you a formula which essentially has you subtracting current liabilities form current assets, and voila! the inference is you have working capital. However, our clients have never paid a supplier or completed a company payroll with a ratio!

To properly assess your working capital needs focus on understanding your turnover – how much inventory do you carry, what are the days outstanding in inventory, and as importantly, or more importantly, are your receivables turning over. Have you realized that for many firms 80% or so of the total of all the business assets you have are tied up in A/R, inventory, and, on the other size of the balance sheet let’s not forget payables.

So can you have financial success based on your new found knowledge and analysis of your cash flow and asset turnover. We think you can.

Canadian business financing solutions to small business finance loans really revolve around a couple viable solutions. Typically, in our experience Canadian chartered banks cant satisfy your business working capital needs – if only for the reason that they rarely finance inventory and require significant merit in your overall financials, profitability, external collateral, personal credit worthiness, etc.

So, where do you go from there? The other solutions are very viable and can take you to a potential 100% turn around in cash flow – they include working capital financing as a bundled line of credit on a/r and inventory via an independent finance company. For firms that are larger we believe the ultimate tool is an asset based line o f credit that provides high leverage margining on all you business assets. Other more esoteric solutions, but still very viable although somewhat misunderstood are securitization, and purchase order financing of new contracts and orders. (Your suppliers are paid directly for the orders you have in hand – what could be better than that?)

Finally, coming up the road at lightening speed is factoring and invoice discounting. We mention them lastly but they are probably the most popular method, gaining traction everyday. Our favorite is confidential invoice financing, allowing you to control your financing.

So there you have it. You have identified new ways to determine the need; we have outlined 4 or 5 solutions that will take the guess work out of working capital. These loan and financing options are available with a bit of research, and, if you choose, speak to a Canadian business financing advisor who can provide you with timely and valuable assistance in your cash flow needs.

How to Get Government and Finance Assistance For Your Business in Australia

Are you thinking of growing your Australian business further but haven’t got working capital and are thinking about government assistance to help you get there. Well here is some information to help you get there.

Some of your options are:
• seek government assistance such as grants or free information
• seek a government grants agency who specializes in obtaining assistance from government agencies
• seek banking finance

Government assistance There a couple of good websites which are really good starting point – Grantslink.gov.au – this outlines many runs and refers links to relevant information do some searches for keywords each relate to your business and subscribe to email alerts of grant areas of interest to your business. Business.gov.au is a great source of information. This also provides the links directly to local, state and federal government assistance programs.

For business startups there is generally no financial assistance, however there is free business advice. Such as the small business support line 1-800-777-275 or business enterprise community call 130-036-3551.

For businesses the startups stage are beginning to develop a good website is enterpriseconnect.gov.au. This is a free government service provides a business review to all businesses with a turnover above $2 million. They provide concrete suggestions on how to improve your business.

So generally speaking, for initial start ups there is government assistance in the form of information. But for established businesses further advice and specialized advice and grants may be possible.

Grants are a mostly used to encourage research and development projects. But they may be for many different purposes and varying amounts.

The federal government has recently introduced the small business online program. The idea of this program is for small businesses to develop web stop web presence and online business. You may be able to get a specialist web developer at low-cost or no-cost. Contact your local BEC for information on their course.

To check government websites is a useful source of information or to your business consultant or accountant for specific information.

Government assistance agencies

Companies looking for a successful business which would generate long-term tax paid and employees, exports and growth. It is important to demonstrate good management skills in the business in any grant application.

You must provide all information required in the application process, you only get one opportunity to make a good impression so it’s best to get it right first time. Also many of these grants may be closing so you need to get in while it remains open.

You need to be realistic in the amount you apply for, then maybe caps on the amount to apply for. Make sure you request the full amount to make the project work do not understate your requirement.

Try to be proactive in requesting government assistance programs, quite often people need this to when they are in financial difficulty. This may be too late.

Approaching your bank

your banker can be a valuable free tool, in exchange for services such as transaction products. They may be able to provide assistance in business decisions and question your planning.

If a bank cannot provide financing it will generally provide you advice on why you are unable to receive finance at this stage and may give you advice as to how to rebuild or develop to obtain finance in the near future.

Banks will tend to look favorably upon a strong application which includes security, business planning, financial projections, experience and management expertise.

Some simple short-term financing arrangements include overdrafts and business credit cards.

Longer-term finance over 5 to 10 years includes loans.

It is important to guard your business adequate working capital server it does not suffer lack of liquidity while growing down the track. Banks normally only take on quality applications so do try finance brokers if unsuccessful with banks.