A really common scenario for a lot of franchise systems is that finding people is hard but finding people who can actually raise the funds to buy the business is harder.

Here are our top 3 tips to avoid the trap:

Early Detection is Number 1…

• The first questions for any prospective franchisee should be “How are you going to pay for this?”
• If the answer is “I don’t know”, STOP. There is no point proceeding until this can be confirmed – a prospect is only a prospect if they can actually purchase the business

TIP:   Include a financial questionnaire in the information pack.   Understand what the profile of a viable prospect should look like, and ask questions about needing or obtaining finance – it will save a mountain of work and frustration

Determine who your financiers are:

• Find out who your franchisees have borrowed from and engage with those lenders to understand their needs and help them understand your business

TIP:   Engage a finance broker.   The broker can actively seek funding partners for your system, and then assist prospective franchisees to obtain funding – you don’t need to do this work.

Know and disclose your numbers:

• A prospective franchisee needs to be able to determine the real cost and potential income from their business, and a lender needs to be able to rely on what you produce.

TIP:  Gather quality and meaningful data, produce realistic forecasts and disclose the challenges.   Tell the prospect on Day 1 what this is going to cost, why, and when.. they’ll generally make their own decisions without any further work from you

At BDA Capital we are commercial finance specialists, with a focus on finance for franchisees, and franchise systems.

Chris White | Franchise Finance Specialist

Contact Chris at chris@bdacapital.com.au or call 0429 490 950.