Financial advice
Financial advice
Franchisors need to provide better business planning support, says Lloyds TSB's Richard Holden
Lending is an issue that has unsurprisingly been on the minds of most franchisors over the past couple of years. In order to access the funds available from banks, franchisees are in the enviable position of being able to draw on the support and experience they receive from the franchisor.
Franchisors who adopt a supportive approach can make a real difference to helping their franchise owners prepare for the initial meeting with the bank manager. By providing guidance, franchisors can ensure their franchisees are in the best possible position to secure the finance they require and to get their businesses off the ground.
Whilst franchisors shouldn't actually write the business plan for a potential franchise owner - the franchisee must retain ownership of such an important document - there are a number of ways they can help.
Some legal advisors suggest that franchisors should not get too closely involved in the business planning process due to the possibility of leaving themselves open to a future misrepresentation claim. The truth is that franchise owners need a degree of support from the franchisor to understand key financial information and assumptions that they will use to produce their financial projections and business plan narrative.
Often, business plans simply don't shape up and they are either rejected outright or the bank will ask for additional information to consider the proposition. It's important for franchise owners to carry out their own local market research, but it's also crucial for franchisors to provide financial information that accurately reflects current average trading performance across their network.
Whilst these figures are for illustration only and are not in any way intended as a guarantee of what the franchise owner will actually achieve, they will help them to produce a plan and financial projections with a clear understanding of what needs to be done to successfully develop the business.
Franchisors need to review their franchisees' business plans to ensure they are realistic and achievable. They should also facilitate an introduction to the banks that have specialist franchise teams and knowledge - an important first step.
Many franchise owners will be presenting their business plan to a bank manager for the first time so it is essential that the franchisor prepares them for that meeting. To emphasise this point, consider the BBC's Dragons' Den. Many of the business owners present their pitch to the dragons so poorly that from the outset they stand little chance of securing the backing for which they are looking.
The business plan will be challenged by the bank manager and they will expect the franchise owner to be able to confidently answer questions about the operational and financial aspects of their plan.
An increasingly popular option for the franchisor is to refer the franchise owner to a finance broker who can work with them to write their business plan. Broker engagement will provide the franchisor with early feedback in cases where the applicant is unlikely to secure funding, thus saving them valuable time.
Richard Holden is Head of Franchising at Lloyds Banking Group. For more information click here.
