OVERVIEW – Information on franchising profitable franchises in Canada . The right franchise loan can make or break entrepreneurial success . Whether specialty lending or utilizing the BIL program it’s important to understand requirements and issues
Success via a profitable franchise is of course the dream of every franchisee entrepreneur when he or she is seeking a franchise loan. While most would agree that nothing is ‘ guaranteed’ in business profitable franchises within growing industries certainly provide a strong level of comfort to the borrower. Let’s dig in.
When applying for a franchise loan (these are done via a specialty lender or under the BIL program in Canada) the concept of profits as they relate to cash flow and loan repayment are key.
In the case of a turnkey situation the franchisee and the lender of course will rely on the business plan and cash flow projections of the borrower. Loans are repaid from cash flow; it’s as simple as that. So your ability to project reasonable success in a business plan and cash flow statement is key.
We often meet with clients who are looking for a bit of a different story when it comes to a franchise loan. That story? They either wish to purchase an existing franchise from a current operator or, in some cases wish to complete a parternership buyout. (Partnerships are difficult!)
In the case of ‘ refranchising ‘ – i.e. the purchase of an existing location it’s critical to get a strong handle on the current financials of the business. If in fact is a predominantly cash business ( a huge per cent age of franchises are ) its critical to understand what happens to cash ( !) , is cash being reported and recorded properly , and if its sufficient to repay both existing and new debt . One tactic we’ve used successfully over the years is to ensure we are provided with 3 months of bank statements and credit card transactions to allow us to see the inflows and outflows of cash.
Again, staying with the idea of purchasing an existing business, it’s critical to get an appraisal done on the existing assets and leaseholds. These will form the basis for any term loan refinancing, and you want, as a prospective buyer to get a handle on current values, replacement values, and liquidation values. Those are of key interest to your lender also.
Many franchisors these days will mandate ongoing replenishment of leaseholds and assets to keep the business ‘ fresh ‘. That’s why your business plan and cash flow projections (if you’re not in a service business) should account for ongoing asset upgrades as needed.
Leaseholds are difficult to finance and they are in many cases best financed via the Govt SBL loan which allows for this type of financing. (It’s difficult for many lenders to accept ‘ fresh paint’ as collateral for your loan!)
Your business plan and cash flow is often best when you approach it as a living document – using it to answer basic questions of profitability, cash flow, reasonable growth, etc. We recommend that down the road the franchisee revisit the plan as a useful template to track financial and personal goal success.
Purchasing a franchise in a sector that has a strong chance of profit is part of the winning combination of franchising in Canada. The properly constructed franchise loan and financing plan will help guarantee this success. Seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can help you achieve that guarantee.
Author: Stan Prokop – founder of 7 Park Avenue Financial
Originating business financing for Canadian companies, specializing in working capital, cash flow, and asset based financing. In business 10 years – has completed in excess of $90 Million of financing for Canadian corporations. Core competencies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details:
7 Park Avenue Financial
Off. 905 829 2653
Cell 905 302 4171
7 Park Avenue Financial
Canadian Business Financing