Buying a Franchise: Financial Matters
It’s a time to explore different options. But how easy is it to access funding from your bank to set up a new business, or grow an existing one by adding more capacity or more outlets?
for franchise buyers Daniel Cloete from Westpac on new opportunities, new rules and the availability of funding for franchisees
ith countries around the world opening up their economies, and New Zealand starting to follow suit, a lot of people are looking at business opportunities anew. But what will ‘the new normal’ look like, and which industries will do well in an environment where inflation and interest rates may be higher than we have been used to in recent years? Covid presented high risk for small businesses, especially in the hospitality, tourism, and retail space, whilst other industries were much less influenced. The normal benefits of franchising, such as systems, marketing and joint purchasing – not to mention the support of franchisors and other franchisees – proved to be very valuable to franchisees during this time. Now, savvy businesspeople are evaluating opportunities that may present themselves as the cycle changes. Many systems have already adapted their business models, achieving improved product margins or reduced investment levels. There may be sites available in locations where franchisees could not find a suitable store before, or at a rent ratio that now fits the franchise’s profitability model. New technology or an increased digital presence provided by their franchise system may also create new opportunities for franchise buyers. And, in some sectors, franchises have too much work and are keen to appoint new franchisees to handle it.
New rules around personal lending
The personal lending side, in many cases, tends to be linked to business lending for franchisees. It is therefore worth noting that amendments to the current CCCFA (Credit Contracts and Consumer Finance Act) legislation have enhanced requirements from 1 December 2021. These include the following areas, which impact upon personal lending products like housing and credit cards:
• Affordability assessments in terms of collecting, verifying and evidencing extra information from customers for lending applications. • Updated suitability inquiry, assessments and informed decision conversations, etc. The result of this is that the time to turn around funding requests has increased. This means that it would certainly pay to engage with your bank (as well as your accountant or other financial advisors) as early as possible, to make sure you have the correct mix and level of funding in place to support your business purchase or growth plans.
Can I have 100% financing? This is a question we often hear from people who have found their ideal opportunity but lack the money to buy it. The answer is, ‘Yes, you can’ – subject to certain requirements. Your bank will look at how much money or equity (eg. the value of your house or other investments) you are prepared to put in yourself as secured lending – usually, at least 50 percent will be required. The balance will be loaned against the business itself if the strength of the brand justifies it. Before agreeing to such an arrangement, the bank will consider the security
Love reading? Love sharing books? Love people? If you’ve ever dreamed of buying or opening your own bookstore then what’s holding you back? We’d love to hear your ideas and get to know a little about you.
Poppies offers over 40 years’ proven book selling experience. Our self-assessment process will help you decide if this business is right for you.
WE HELP FRANCHISORS ADVANCE THEIR REPUTATION AND BRAND THROUGH STRONG MESSAGES, ADVOCACY & ENGAGEMENT
Every business wants to tell their story with impact, while avoiding bumps in the road that affect reputation and brand.
• Communications strategy
We do the things that make sure franchisors are ready to deal with challenges and maximise opportunities.
• Public relations
+64 22 1201672
Poppies is not about putting a store in every town, nor about being all things to all people. Success comes from making the right choices – location, systems, ambiance and of course the books you select.
• Reputation management • Media relations • Stakeholder engagement
Poppies… your own bookstore… think about that! Contact Tony Moores (Owner/Director Poppies Group Limited) firstname.lastname@example.org Franchise New Zealand
Year 30 Issue 04