How to Raise Money for Any Franchise? (1)
How often have you thumbed through a business opportunity magazine, noticed a franchise opportunity advertisement, and felt you'd really like to get in on that... if only you had the money?
If you're like most who are seeking one of the greater business opportunities that generates good income, this probably happens with you more often than you care to admit, except perhaps in strictly private conversations.
When the average person sees one of these opportunities, or comes up with a similar idea of his own, the problems of start-up capital may seem formidable. But in reality, they may not be. In fact, just about anyone with a good credit record and an "insider's sense of business" can get the capital he or she needs, whenever it's needed.
The secret is in knowing how to put together a proper proposal (see business proposition), and to present it to the right person. These are the "how-to" instructions we're going to give you in this report.
The first thing you're going to need is a complete business plan. This is a complete and detailed description of exactly how you intend to operate the proposed business. Your business plan should detail precisely the following:
- the product or products you plan to sell;
- how you're going to produce or manufacture the product;
- your costs (inventory costs if you're purchasing them from a supplier);
- who is going to sell those products for you;
- how they're going to be sold;
- the attendant costs;
- when you expect to recoup your initial investment;
- your plans for growth or expansion; and…
- the total dollar amount you're going to need to make it all work according to your plan.
Your business plan must be detailed - complete with projected income and expense figures - through at least the first three years of business. For more details, and "how-to" instructions, see the business reports, "Reorganize Your Time to Accommodate a Home Based Business # 2001" and "How to Prepare a Profitable business Planning # 3503".
Now, assuming you have your business plan all worked out, put together and ready for presentation with your request for capital, let's talk about your capitalization proposal.
First, keep in mind that whenever you ask somebody for money, whether it's for a small personal loan or a large amount of money to finance a business, you're involved in a selling situation. You have to prepare a "sales presentation" just as if you were getting ready to sell an automobile or refrigerator.
Within this sales presentation you must have all the facts and figures; you must anticipate the questions and the possible objections of the prospective lender with answers or explanations; and you must "package" it as impressively as you would yourself for an audience with the president of the financing company of your choice. The report mentioned "IBM and General Motors" as examples.
The more money you ask for, the more "in-the-know" will be the people you want to borrow from, and so the more detailed and organized your proposal must be. This shouldn't cause you too much worry however, because you can hire a CPA to help you put it together properly, once you've got the facts and have a business plan he can work from.
Look at it this way: The more money you request for your business, the more your lenders or prospective investors are going to want to know about you, your plans and your business. What they want exactly?
- They want to be impressed with the fact that you've done your homework;
- They want to see that you've researched everything and documented your facts and figures;
- They want to be assured by your presentation that investing in your business will make money for them.
It's just that simple at the bottom line. Unless you can instill confidence in them with your business plan and loan or investment proposal, they're just not going to give much positive thought to your request for financial assistance.
So you'll need a balance sheet describing your net worth - the worth of what you own compared to the amount of money you owe. You'll also have to prove your stability and money-management talents relative to how successful you've been in paying off past obligations.
If you have had credit problems in the past, get them "cleaned up", or at least explained on your file at your local credit bureau office. Under the law, credit bureaus are required to give you
all the information they have about you in their files, and it's your right to correct any errors or enter explanations regarding negative reports on your credit. Do this without fail because prospective lenders or investors will definitely check your credit history.
So, now you have your balance sheet prepared; your credit history organized in a light that's favorable to you; your business plan (with costs and income projected over the coming three years), you're ready to start looking for lenders or investors.
Almost all franchisors offer help in setting up with one of their franchises. Most will go out of their way to assist you in getting the financing you need. Some will lend you the entire amount, with payments coming out of the income they expect you to make from their franchise operation. Many will carry this loan themselves, while others will carry part of it and find you a lender to finance the remainder.
Franchisors have two objectives in mind when they offer franchises to the public: They are trying to expand their operation, thus increasing their profit, and they are trying to raise capital for themselves.
Generally speaking, if you have a good credit history, and if they feel you have the necessary business personality to achieve success with one of their operations, they'll do everything within their power to get you in a franchise outlet.
Keep this in mind the next time you see an advertisement for a promising franchise opportunity requiring a substantial amount of cash outlay. You don't necessarily have to have all the money. They want you, and they'll help you!
Many people seem to be unaware that most of today's largest corporations started on a shoestring - on borrowed money. Many people seem to feel that unless they've got it all "in hand" in savings, then they'll just have to keep plugging away until they can save up enough to take the big plunge.
Nothing could be farther from the truth. Just a quick bit of research will show that 999 out of every 1,000 businesses were begun on borrowed money.
Look to your family and friends for financial help. Approach them in a business-like manner; tell them about your idea or plans, and ask them for a loan. Agree to sign a formal statement to pay them back in three, five or ten years, with interest.
When you have your proposal assembled, you might even want to think of a limited partnership or even a general partnership arrangement as a way to finance your project. In any kind of partnership, each partner shares in the profits of the company, but in a limited partnership, each person's loss liability is limited to the amount of money he initially invested.
The truth is, in this kind of a situation, you'll be doing all the work and sharing your gain with your partners, but then it's a fairly sure way to obtain needed financing.
Another common method of obtaining business financing is through second mortgage loans on a home or existing piece of property. Say you purchased a home ten years ago for $35,000, and today the assessed valuation is $85,000, with a mortgage of $25,000 still outstanding.
A lender may consider your home to be security or collateral for a loan up to $60,000. In many instances, this is the easiest and surest way of getting the money needed for franchise or other business investment.
And, it makes sense; you've got "net worth" available that is doing nothing but sitting there. Take this equity and invest it in a worthwhile business, and you could double or triple your net worth each year for the rest of your life.
Deciding to obtain a second mortgage on your home in order to finance a business opportunity is without doubt a major decision, but if you are sure about your investment project, and are determined to succeed, you owe it to yourself to go ahead.
* Continue How to Raise Money for Any Franchise 1
at How to Raise Money for Any Franchise 2
and Questions to Answer Before You Buy A Franchise
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