last updated 22/06/2018
FIVE YEARS ON
last updated 22/06/2018
Andy Higginson of Westpac in Christchurch talks about new business opportunities in Christchurch’s CBD and how to fund a franchise
It is just over five years since Christchurch was changed forever, but the future is looking bright at last. The residential rebuild has reached its peak and the commercial rebuild is now gathering steam – especially in the CBD.
What does this mean for franchisors and franchisees? Business opportunities! 2016 is predicted to be Christchurch’s biggest year in retail to date, mainly due to the opening of the Retail Precinct towards the latter half of this year. Based around Cashel Street, with its pedestrian-only promenade, the precinct will be a destination in itself – something that the pre-quake CBD certainly lacked.
The early days of the recovery saw just a handful of bars and restaurants operating on the fringes of the CBD, but towards the end of 2015 we saw an increased level of openings, particularly in the High Street and St Asaph Street areas. Over the next 12-18 months, it is predicted that the influx of workers and residents returning to the CBD and its outskirts will see demand increase dramatically. According to recent research carried out by Jones Lang LaSalle, the CBD worker population should reach levels of 16,000-plus by the end of 2016, growing to 47,000 as we head into 2020/2021.
This growth is partly due to all four major trading banks committing to the CBD, along with government departments, accountants, and lawyers drawn in by larger CBD developments. This influx of worker population growth will fuel retail growth and activity in the retail market and, of course, present huge opportunities for franchisors and franchisees – particularly in the food and drink sector.
A key consideration, though, will be the rents charged for CBD space. Jones Lang LaSalle predicts that the rental levels for the prime retail strip of the Retail Precinct (Cashel Street) are expected to be in the $1,000 to $1,200 per sqm range. Less central spots should be in the $800 to $850 per sqm range. Franchises will need to weigh up these costs carefully against their business models as they plan to venture into the city. It’s worth noting, though, that these predicted rents are much lower than prime Auckland CBD rents of $3,000 per sqm.
Many well-established franchisors are already planning for these opportunities, so now is a good time for local business-people, returning Cantabrians and newcomers to New Zealand’s most exciting city project to start looking at the opportunities available and engage with their chosen franchises.
obtaining the funding
Of course, once you have found a franchise that is right for you and determined the funding requirements you need to start your new business, it’s time to talk to the bank. This is where dealing with specialist bankers who not only understand franchising but the local market, too, can be a big help.
In general, there are five main areas that banks will consider in funding a new franchisee’s business:
Character Do you fit the franchisor’s profile of the ideal franchisee? What is your track record like and do you have any experience owning or managing a business? It’s a good idea to present an up-to-date CV to the bank, which should give a good picture of your background, knowledge, and experience. Well-established franchises will provide structured training and mentoring, so don’t be disheartened if you don’t have the specific skills at the start. Along with assessing the business itself, the bank will also assess your personal financial position.
Transaction Risk The bank will want to know details of the specific business it is being asked to fund. Where is the proposed location? What does the outlook for growth look like? What’s the competition like? This is where you need a proper Business Plan which will outline your business objectives, your product or service, your potential customers, the term of the franchise and other key points. It is important that the Business Plan also include a cash flow forecast – this will show the bank that you have considered the cash flow requirements and funding needed as the business becomes established.
Don’t be alarmed by the need for a Business Plan. Many franchisors will be able to provide assistance and will be able to draw on benchmark figures from existing franchises at different stages of their business life. You should also engage a franchise-experienced accountant to cast their eyes over the numbers and offer advice on the best way to structure your finances.
Servicing It’s important to ensure that your new business is going to generate enough money not only to service the debt but also provide an income for you personally. Franchisors should be able to provide benchmarking data, and make sure you involve your accountant in assessing the financial accounts. Also, any forecasts will need to have the assumptions clearly explained – again, advice from an accountant will be key.
Security/Equity Banks will always look for security to support your borrowings, and this will usually be the equity you have in your property. However, for certain franchises banks may be able to lend up to a certain amount against the purchase price of the business itself. This will vary from system to system (and also may vary from individual to individual) but overall a well-established franchise system with a good track record will attract such support.
Other Considerations In starting up a new business, there is plenty to think about and having support from a franchise-experienced banker right from the start can be a big help. They will know what cash flow and potential overdraft facility requirements your type of business may need; can offer finance options for required equipment purchases (eg. finance over the life of the asset, as opposed to your needing to make a lump sum payment which may cause cash flow issues); and offer other specialist services which may assist you in starting up the new business. These include merchant services, international trade finance, insurance and risk advice, and different forms of online banking depending on your requirements. Your franchisor should be able to detail what you will need but it always pays to check with the bank.
The above might sound complex but if you are looking to establish a new business in Christchurch (or anywhere else, for that matter) involving a specialist franchise banker can make it a fairly straightforward process. Westpac has a team of franchise specialists throughout the country who understand local markets and local conditions. We would be more than happy to help you out.
The information contained in this article is intended as a guide only and is not intended as an exhaustive list of matters to be considered. Persons entering into franchise agreements should seek their own professional legal, accounting and other advice.
This advertorial is taken from Franchise New Zealand magazine Year 25 Issue 2
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