Franchise New Zealand - Year 28 Issue 04 – Summer 2020

Page 28

Buying a Franchise: Financial Matters 2 By comparing the financial performance and KPI’s like Sales, Gross Profit Margin, Labour Cost, Rent and ROI (Return On Investment) with others in the same group, you can develop a much better understanding of the business, lower the risk and facilitate information that can assist with a business plan and funding application.

GET THE RIGHT FUNDING Daniel Cloete from Westpac explains how working with a specialist franchise banker can help you make the right decision


hen looking to buy a business, wise investors look at a host of factors. Among the top priorities should be the risk of investing in a business; the financial performance of the existing or new business; and the ease of being able to fund the business purchase. You may also need to address whether to buy a totally independent business or consider a franchised or licensed model. There are advantages and drawbacks in any model, but with full-format franchises from the stronger brands benefits may include a proven business model, a well-known name, group buying power, coordinated advertising and marketing and an exclusive territory. Other advantages can include franchisor support and benchmarking against other franchisees in the system. In some systems, there’s also the potential to develop your business through owning multiple outlets. There can be benefits on the financial side, too: 1 Even with a new franchised outlet, you should have a known financial input including initial costs and working capital.

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Daniel Cloete

3 For well-known and accredited franchise systems, it may be possible to fund against the projected business income with new set-ups for proven systems.

See your banker as an ally

Obtaining bank finance might seem to be a big issue, especially for first-time buyers of small businesses. In fact, it can essentially be a straightforward process, using the same information you need to assess the business yourself. You should therefore consult a specialist franchise banker and see them as an ally. A good specialist already knows most of the franchises available and can quickly see if claims (like income or expenses) are realistic. They can also offer different funding structures, which make the best use of your equity. One thing to remember is that it is you who are the bank’s client – not the franchisor. It is therefore in the bank’s interest that you should join a stable, profitable franchise system without paying too much for the business. This does not mean you should not do a proper assessment yourself. Your bank is going to expect you to have an intimate knowledge of the business that you are planning to buy and its financial position or prospects. This is in your interests, too: by doing your own research and using experts like franchise accountants and lawyers to do the specialist work, you can increase your chances of finding the right business to suit your needs and ambitions.

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LOVE YOUR LAND Franchise New Zealand

Summer 2020

Year 28 Issue 04