What you need to seek finance
What is a business plan?
A business plan outlines what you plan to do with the funds you gain, how you will pay back the borrowed money, and how you plan to make the business itself successful. Your franchisor will be able to help you with these aspects, and may have a template for you to follow. Regardless of what your franchisor provides, you should take the time to make sure that some vital areas are covered in your business plan, as your ability to get funding will depend heavily on its contents, and whether it displays enough evidence of the business’s potential to flourish.
Who can help with your business plan?
The importance of a good business plan can’t be stressed enough, so be sure to involve as many people as you need in the draft process. The types of people who will be useful to you include:
- Your franchisor
- An accountant
- A solicitor
- An experienced franchisee
- Other business owners
- A proof reader or copywriter
When getting information from third parties such as accountants or other franchisees, remember to ensure that you fully understand any facts and figures given to you. You may be asked about these aspects of your business plan later on and a potential lender will want to see that you have a solid understanding of all the information you’ve presented to them.
Franchise business plans vs. other business plans
It’s important to note at this stage that your franchise business plan will be slightly different to a generic business plan, as it will involve collaboration from both franchisee and the franchisor. Whilst your franchisor isn’t required to ‘approve’ your franchise, they will be required to have considerable input in terms of outlining the business model.
With that said, according to the government’s Business Link website, here are some elements you should be sure to include:
An executive summary
This is a general summary of your business, with an overview of what it will do and how it will work. This is a key area of your business plan and since first impressions count, it’s worth investing time and effort in making this initial overview as polished as possible.
Description of the business opportunity
A description of your products, services and who you are, including who your target market is.
Sales and Marketing strategy
How you plan to market your services to your target audience, which marketing platforms you intend to use and why, and what the unique selling points of the business are which will ultimately make others buy from you.
Management and Personnel
Who you are planning to recruit to help you run the business, whether its staff or managers
Operations
The tools and resources which will be used for the day to day business operations, including your premises, production facilities, the IT systems you will be using and how you will manage information systems. Include where you plan to locate your business premises, as well as aspects such as your policies on ensuring health and safety standards.
Financial forecasts
This describes everything in your business plan in terms of numbers. This should be for a three to five year period. Note that your franchisor won’t be able to provide you with projected profits for the business, this is because there are legal implications for making financial claims,
Looking for funding: your business plan essentials
If your business plan is being designed with approval for funding in mind, it’s important to work hard on the financial section and get it absolutely right before you show it to a lender or potential investor. A potential lender will be looking for some key insights from your business plan, for example:
- Will you have enough income to repay the loan?
- Do you have any additional sources of income which may back you up in a crisis?
- How much do you need to ‘break even’ and how long will it take you to do so?
- What are your projected profits (and losses) for the coming year?
- How much income will you need to pay yourself?
- What are your overheads?
- What or how you will get the cash flow (the working capital) to keep the business running until you make a profit, for example how will you pay suppliers in the meantime?
· Part 2: your credit history
The second aspect you need to consider before you seek funding is your credit history. Do you have a clean bill of health when it comes to your finances? If you can demonstrate a good track record in terms of repaying your borrowings on time, it’s likely that you’ll find it a lot easier to get the funding you need for your franchise.
What is a credit report?
A credit report is a collection of information about you which is used by lenders when deciding whether to grant you a loan, overdraft, or credit card. A credit report is supplied to lenders via a credit reference agency, and contains information such as:
- Your name and date of birth
- The electoral register
- Your credit payment history
- Bankruptcy, administration orders or housed repossessions
- County Court judgements
The most important part of the report is your credit history, which details all the credit accounts you have opened, the date you opened them, the credit or loan amount given to you and the number of payments, if any, you have missed. It will also show your account provider (who you bank with) and any other information relevant to granting credit, for example if you have an unauthorized overdraft. Every time your credit report is looked at (i.e. each time a lender looks to decide whether to lend to you), the credit reference agency will also note this down and it will remain on your account for two years. Overall, any details of credit given to you will stay on your account for six years after you have closed a loan or credit card.
How to obtain your credit history report
There are three credit report agencies operating in the UK. These are:
- Experian
- Equifax
- Call Credit
Because lenders use all of these agencies, you should obtain your credit history report from each one. By law, you are entitled to see your credit report for a fee of £2, and to do this you must provide them with your full name and date of birth, as well as your addresses for the past six years in full. Agencies may ask for proof of identity before supplying your report; this is routine and intended to protect your privacy.
Can your credit history prevent you from getting a loan?
Your credit report may contain information which would deter a lender from approving a loan. If so, you have a number of options:
If you have further information to support your loan application, you can supply this to a lender and ask them to reconsider their decision
If you find that a credit reference agency is holding inaccurate or false information about you, you can ask them to correct it. This includes asking them to disassociate you from anyone associated with you on your file that may negatively impact your credit history
If the above options aren’t open to you, you can look at other ways of funding your franchise, without involving a loan from a financial institution.