By Chris Ryan F. Fin.

So……… you want to buy a franchise? Why?

You may have many reasons, but let me suggest that your primary motivation for buying a franchise should be a desire to make money. Or more specifically, to make an adequate profit sufficient to fund your life’s expenses. This could be -:

1. putting food on the table for your family,
2. providing a roof over their heads,
3. paying your mortgage,
4. funding your household costs like rates, electricity, motor vehicle & more,
5. providing welfare and education for your family and
6. financing your sport and recreation needs.

To start off, you need to identify a business that can accomplish all the above, and just as importantly -:

1. fund the costs of running the business,
2. service any borrowings necessary to purchase the business, and
3. provide sufficient return on the cost of the investment (ROI) to justify your purchase of the business.

What If You Get It Wrong

Before you buy a business on finance, you need to have an honest understanding of your household costs to keep the home fires burning.

Why? Get them wrong and you face these alternatives -:

• Starvation… result: your business fails because you starved to death.
• Family starves… result: Before starving, they kill you because you are a poor provider.
• Have to sell the family home… result: family leaves, you get depressed and you might as well have had the family kill you.
• Can’t pay the school fees, ballet lessons, etc. … result: again, death is lookin’ good.

The most probable alternative however is:

You will be reluctant to withhold funds from your family or yourself. Therefore, you will starve your business of working capital & stock. As this position gets worse, opportunities reduce and your business fails.

Result: You will have lost a lot of money as you were required to sell the business for much less than the purchase cost. Or worst of all, you don’t have a business to sell.

So two things -:

1. Get the household expenses right, and
2. Understand the issues of financing the business, such as -:
1. Fees,
2. Interest Rates,
3. Security,
4. Term of Borrowing,
5. Profit Projection and
6. Working Capital.

This concludes part one. Some of these issues will be discussed next week in my article series on financing a franchise – so stay tuned!

Chris Ryan F. Fin.
ryanmortgage1@optusnet.com.au

Chris Ryan is a Finance Broker specialising in Commercial Lending. He is a Director of Ryan Mortgage & Finance Pty Ltd and is a Fellow of the Financial Services Institute of Australia. Chris Ryan has 33 years experience in the Banking Industry principally engaged as a commercial lender and has operated his own Finance Broking practice for 10 years.

Related posts:

1. Financing a Franchise – Part 2 of 3
2. Financing a Franchise – Part 3 of 3
3. Financing a Franchise
4. What is WIWO?
5. What Is SAV?