16 September 2014

Franchise Finance

Franchise Sector Finance

In the UK the franchise sector has over 1,000 different brands turning over in excess of £14bn per annum. The sector is huge and growing fast, in 1994 the turnover of franchises in the UK was under £4bn, that is a £10bn increase in one generation.

The Franchise Funding Challenge

Franchising can offer a great way for new business operators to enter the market. As with any business there are start-up costs and franchising is no different.

The challenge for many franchisees is that the mainstream lenders (banks) often obtain their information about a particular franchise from the franchisor. This means that the picture presented to them can differ from what is actually happening on the front line. There are a few reasons for this;

  • Franchisors want to grow their franchisee numbers
  • Franchisors are typically driven by sales as they charge a royalty based on turnover

The flip side is that franchisees can often end up starting their new business;

  • With not enough cash behind them
  • Without the cash to see them through should sales be more gradual in their growth

These issues can be overcome, but can also stifle growth. Many franchise businesses want their operators to expand and grow, if the initial funding is not done correctly this can mean;

  • The initial start-up finance can inhibit a franchisees ability to borrow when they want to expand
  • The franchisee and lender have different expectations over when expansion, and new lending, will happen

These issues can come back to haunt franchisees, limit their growth and cause stress between franchisee and franchisor.

What Lime Consultancy Do

We are in a great position. Founder, Dave Farmer, comes from a franchise background. Having worked with leading UK franchise names such as McDonalds, Subway, Dominos and Autosmart among many others. This experience means that we have a core understanding of franchising and how it differs from a normal business structure.

When we look at funding for franchises then we adopt these simple rules;

  • Look at the need for finance now
  • Look at the expansion plan now and ensure the initial funding will allow for the expansion plans
  • Work with lenders who have experience of franchising and can accept a fast moving and aggressive growth business
  • We remain aware of what is happening in the franchise world but will work for either franchisee or franchisor, not both

The Benefits of Using Lime Consultancy

When it comes to franchising we have a few key benefits;

  • We get franchising, it is in our blood
  • We understand that the main variable in any franchise is the operator, you. The focus of the business needs to be the person running it
  • Our relationships with the major franchises means we are aware of what is happening, can impart our experience to you, and at the same time remain completely impartial
  • We only work with lenders that offer the right structure of finance that will allow you to both get started, and expand

What To Do Next

If you are looking at starting a franchise, or are an existing franchisee looking to expand then please contact us on 01293 541333, email info@limeconsultancy.net or contact us via the website.

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