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Financing & Cash flow are the biggest issues facing business today
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Safe to say that many potential franchisees considering the purchase of their business are somewhat baffled by some key issues which ultimately could affect the success of their business purchase.
Basic things, such as have they chosen the right franchise that suits their skills and interests? Have they investigated the basics of franchise financing in Canada? And do they have the resources and time and information to properly complete the purchase? In some cases their funding might involve the purchase of an existing business in the franchise model, i.e. a sale from a current franchisee, In that case, their question is 'are their franchise loans to cover off the purchase of a resale franchise?' and how do they differ from a new unit purchase?
All are key issues that warrant special consideration. We are often amused because we see clients at both ends of the extreme; something that franchising is rife with pitfalls and risk and simply a bit too complicated, while at the other end of the spectrum there are those that seem to consider the whole process somewhat of a 'cakewalk' and aren't really prepared to focus on issues that will make or break their success.
Does it make sense to align yourself with a Canadian or a U.S. franchisor? There's probably no absolute answer on that one, but we will offer up that all things being equal you will find that no matter on what side of the border your franchisor is domiciled key areas such as their current success, prospects, financial stability, and management team and support all are key to your success - So focus on those issues.
It may be surprising to know that one of the current challenges in the industry is the fact that it's difficult for a franchise owner to expand and grow additional units in his or her mini-empire. However, when this can be achieved as an entrepreneur you now have the ability to expand your success with a minimum of capital, leveraging your ability to increases profits and value in your enterprise.
Franchisees need to be in a position to properly address the financial benefits of their purchase. Their ability to realistically assess the total profit potential of their purchase, as well as the ability to maintain an income and lifestyle they desire, are key. This is best achieved by proper financial planning via a business plan and growth analysis of the business. This can be prepared by the franchisee or with the aid of their accountant, advisor, etc. The worst thing any potential purchaser can do is not address the financial risk and return on investment in a business purchase - that, of course, goes for purchasing a franchise or any business for that matter.
In Canada, franchise loans can be accomplished in several ways. You have the option of dealing with a specialized franchise finance firm, but their assistance may be limited to franchise systems you personally are not interested in or perhaps don't have the financial strength to participate in. Franchises these days range in size from a few thousand dollars to several million, and everything in between. Focus on matching your personal financial commitment to the franchise and aligning it with the total investment you need to consummate your purchase.
Thousands of Canadian entrepreneurs choose the Government of Canada Small Business Loan Program to complete their franchisee financing goals. Key benefits are a modest investment of your personal funds, and very acceptable rates, terms and structures when it comes to your personal guarantee, ability to repay without penalty, etc. Investigation of this program is highly recommended.
Purchasing a resale franchise is a very viable strategy. Franchise loans and funding for this type of purchase are also available, but the process is a bit different, simply because you're purchasing an existing business. Key elements of a resale purchase are the validation of existing financials, valuation of assets already in the business, and financing that covers off an asset sale as opposed to a share sale.
With the proper assistance, Canadian entrepreneurs should not be 'baffled' with either the selection of a franchise or the financing of it. Speak to a trusted, credible and experienced Canadian business financing advisor to get the right objective advice and assistance you need.
Stan Prokop 7 Park Avenue Financial/Copyright/2020
