You have decided to get started and create your own structure, and to minimize the risks you have chosen to become a franchisee of a proven network.
Only here, for your franchise project to see the light of day, you still have to succeed in raising the necessary financing for its assembly.
To help you in this process, in this article we go through all the financing solutions for the franchise.
Financing A Franchise: What Are The Differences With A Traditional Business Creation?
Compared to a traditional business creation, opening a franchise has two major specificities in terms of financing:
- A larger initial investment
- Recognition of the network with financial partners
Financing A Franchise: A Larger Initial Investment
In the case of a franchise creation, the amount of financing is a little higher than if you opted for a traditional, independent business.
Indeed, in addition to the investments necessary for the creation of the company itself, a franchise business also requires paying the network entry fees.
The amount of the entry fees obviously depends on the brand you join, but their amount can sometimes represent a significant sum.
In addition, networks generally require their franchisees to have a minimum personal contribution. This amount is set so that the company has a financial structure adapted to the activity, that is to say a distribution between debts and equity balanced allowing the company to face operational constraints. (seasonality, time required to reach breakeven point, etc.).
The minimum personal contribution amount therefore aims to maximize the chances of success of the project, however it is generally higher than the “strict minimum” necessary to create the business. This reduces the risk of the project, but again increases the amount needed to launch.
Recognition Of The Franchise Network With Financial Partners
Franchising allows you to benefit from a well-known and recognized brand, sometimes product exclusivity (i.e. the products you sell come from the network supplier who only distributes their products through this channel) , and very often an exclusive location. You will therefore not see another store of the same brand set up near yours and compete with you.
But franchising also means taking advantage of economies of scale: products and equipment purchases negotiated by a purchasing center which benefits from reductions thanks to the large volumes it orders.
Franchising also allows you to benefit from training, sometimes assistance, management tools, and you benefit from the advertising campaigns and marketing actions set up at the group level.
This support from the network and the confidence that consumers have in an already well-established brand are key elements, because in principle they make it possible to significantly reduce the risk of the project and thus obtain a survival rate and profitability better than for independent creations.
These arguments very often play a decisive role in convincing both entrepreneurs to join the network, but also financial partners to provide funding for the franchise project.
However, be careful, not all franchises have a good reputation with credit institutions.Read More