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Financing Your Franchise

May 28, 2019

Whether you’re looking to expand to another location or aiming to build out the franchise you currently own, there are a few key things to keep in mind.

One of the most important is how you’ll pay for it. From finding financing that fits your goals to ensuring you have plenty of cash on hand, the growth you seek depends on it.

Financing Options

Once you have an updated business plan with projected financials, it’s time to determine where the money to fund those plans will come from. One way you’re likely familiar with: financing through your franchisor. They usually offer a variety of options—especially if you’ve already experienced success. After all, their growth is directly tied to yours. Once you know how much they’ll offer, you can turn to additional sources such as friends and relatives, loans, or asset leveraging.

Working Capital

Even with financing in place, it’s critical you maintain adequate cash reserves. Covering your business over a set range of time (whether weeks or months) will ensure you can sustain your business day-to-day. It’s important enough when simply running your business. It’s even more necessary when you’re pursuing growth or getting a new franchise off the ground. 

Common Expenses

While franchising costs are unique to every franchisor and situation, there are still common expenses you’ll have to take into account when securing financing and maintaining cash reserves. If you don’t, these costs can easily blow your budget—sinking your plans to grow or even negatively impacting your business.

> Franchise Fees. If you’re planning to expand to another location, you’ll pay an additional franchise fee and royalties. Very often, these are discounted from what you paid initially.

> Legal & Accounting Fees. You’ve likely worked with a franchise attorney and accountant already to ensure you’re legally and financially sound. Any expansion will involve them again.

> Build-Out Costs. A new location or franchise improvements mean costs beyond land, a building, or materials. Expect professional fees, décor, landscaping, security, and insurance costs as well.

> Supplies. There are supplies associated with every business. You’ll likely need to increase quantities as you grow, ensuring you maintain proper inventory levels.

> Inventory. Keeping adequate product on hand to meet existing and new demand is key in helping your business grow—especially when it comes to your customers’ experience.

> Training-Related. New growth means more employees, which translates into additional training—with potential travel and living expenses.