Borrow less to stay ahead
Borrow less to stay ahead
By: Linda Whitney
WITH an affordable franchise you can start up a business without running the risk of overstretching your budget.
Plenty of franchises cost less than £20,000. You could invest your savings, redundancy money or even a bank loan.
Banks favour lending to franchised businesses over independent set-ups, and if you want to borrow less than £25,000, you stand a better chance.
‘Bank franchise arms are more likely to lend smaller sums because the repayments are more affordable,’ explains Mark Scott, director of franchise development at NatWest
Borrowing less than £25,000 also means you can get an immediate lending decision based on your credit score, though the franchise you want to start will also be a factor. The banks favour franchises with a record of success.
‘We are not seeing a problem raising money among applicants for our franchise,’ says Lee Southern of Barking Mad, whose franchisees providing petcare services.
‘Most of our franchisees find the start-up costs of £11,950 out of their savings, but people wanting a bank loan to start have had no problems,’ says Mrs Southern.
Check what you get for your investment. Fenella Lindsell of Yoga Bugs, a children’s yoga class franchise that costs £9,900, says: ‘The initial fee includes training for yourself and three teachers, to government-recognised standards.’
It also includes stationery, merchandise, exhibition stands, vehicle branding, software, and business support.
You might need extra money for equipment and to pay bills while your business gets into profit.
‘Our franchise costs £9,995, plus £4,000 for equipment such as microphones and music systems, and working capital to tide you over the first few months, about £16,000 to 17,000 in all,’ says Jo Franks of Pop Stars Academy. Her franchisees run children’s dance classes and parties. You can teach yourself or employ professional dance teachers.
Franchisors also levy management fees averaging around 11 per cent of monthly turnover, but check the rates.
Safeclean, the franchise that provides organic cleaning for furniture and upholstery, charges 11 per cent a month. ‘We waive fees for the first six months and then set them at £175 a month for the next six months to help reduce your starting costs,’ says Paulene Howells of Safeclean.
The start-up cost is £16,175.
New low-cost businesses are appearing, reflecting the current financial situation.
The HR Dept, which provides human resources services to small businesses, is offering licences rather than franchises for £1,500 to help HR professionals start their own businesses without having to set up from scratch.
CAROLINE MOULSDALE used £400 of savings to start a Kumon Educational franchise in 2006. Now the business earns her a pre-tax yearly income of £45,000. ‘My own children did Kumon maths and English training, so when I wanted a family-friendly business, I decided to invest,’ says Caroline, 38, pictured with twins Christian and Edward, 12.
She set aside extra money for marketing and advertising. ‘I was determined to have a high profile locally, and I was in profit by the end of year one,’ says Caroline, from Bishop’s Stortford, Hertfordshire.
The Kumon franchise involves running after-school maths and English study programmes for children. Caroline now has 14 staff and 200 students, attending sessions at a local hall twice a week. She runs the business fulltime, around her family.
Although Kumon’s initial fee is low, its monthly management fees are high. New franchisees pay Kumon 45 per cent of each child’s tuition fee, dropping to 40 per cent after a year. You also pay Kumon half of each registration fee.
‘I knew the royalties were high, but you get help with marketing, stationery and advertising. Kumon subsidises 60 per cent of your advertising spend,’ says Caroline. She advises: ‘ Set aside extra money to pay your bills while the business gets up and running.’