Approaching the bank for finance

By Gillian Morris, UK Head

Investing in a franchise can be an exciting and daunting step Once you have selected the right franchise for you, and been approved by the franchisor, thoughts will inevitably turn to funding.

Even if you are self-funding, it’s important to calculate all the costs involved at the outset, so that you can ensure that you have the best funding package in place to help you get your business up and running

Many overlook the amount of working capital they will need for the initial trading period until their business is established. Unfortunately, incorrectly calculating your working capital is a common and a costly mistake, so it’s important to get this right from the outset.

Alongside the initial cost of acquiring a franchise, there will be other costs that need to be taken into consideration. Some examples of these additional costs include training fees, marketing, premises, shopfitting, vehicles, initial stock, equipment, and VAT

These outlays can also be overlooked –and sometimes the initial outgoings can be higher than the initial franchise fee itself Whilst it may seem unnerving, it is important to know the total amount of your investment upfront – from there you can determine whether you need additional finance

It is at this point that many find it difficult to approach a bank for finance, but hopefully this article will help you to approach a bank in a confident way, with an awareness of the type of questions likely to be asked

How much can I borrow?

Having worked out the start-up costs and how much you need to borrow, look

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realistically at the potential profits of the business Is the level of investment justified and can you recover the money you have put into it?

The first step is to establish how much money you can put into the business –what can you afford to invest It is important to know how much cash you have available, and you must be realistic about how much you can afford to borrow

If investing in an established franchise with a good track record, you may be able to borrow up to 70 per cent of the start-up costs including working capital. For a newer franchise it is likely that you will have to put in at least 50 per cent from your own funds It is very important that you do not over-borrow but it is also important that you are not underfunded

Your personal and domestic outgoings will obviously determine the level of drawings you would like to take from the business A personal budget schedule will help you establish how much to allow for your needs It is important to budget for these accurately, as if underestimated, the business can be

About the author

under pressure in the already difficult early stages

The bank will look at the purpose for which the money is going to be used and its effect on your business

● Is there sufficient demand for your product or service (the fact that you are going to be investing in a tried and tested franchise format helps here)

● How will the money borrowed benefit the business?

● What type of finance are you looking for, an overdraft, loan or a package of financial services?

● How much are you investing in the business?

Do

I

need a business plan/cashflow forecast?

The simple answer is yes!

Even if you do not need to borrow, a business plan is vital to help establish where you are, where you are going and how you intend to get there It is a statement of your objectives, estimates and financial forecasts It should also contain cashflow forecasts, which your

Gillian Morris has over 25 years’ experience in the financial services sector and was appointed as UK Head of Franchise, HSBC UK in Januar y 2022 Morris joined HSBC in 2017, as par t of HSBC’s Commercial team in Nor thern Ireland and in Januar y 2019 became Head of Corporate Banking & Agriculture, Nor thern Ireland for HSBC UK

Prior to joining HSBC, she worked for Lloyds Banking Group, based in London, having joined as a graduate trainee Her career to date has encompassed relationship banking, structured asset finance as well as strategy development and business per formance

She holds a Law degree from Queen’s University, Belfast and a BSc(Hons) in Banking and Finance from UMIST and is an Associate of the Char tered Institute of Bankers (ACIB) franchiseunit@hsbc com www.business.hsbc.uk/hsbc-franchising