Step Two - Get The Money Right

Most people require some sort of finance. Even today, banks will often lend up to 50% of the cost of any new franchise providing it stacks up as a good proposition, but they will require some sort of security. This is usually property. When calculating what you can afford to borrow, remember that it is the value of the equity in the house, and not the value of the house itself, against which the bank will lend. The bank will restrict borrowings to up to 80% of the registered valuation, so if you need to borrow, say, $100,000, you will need to have a registered valuation of at least $125,000 on your property with no mortgage. If you already have a mortgage of $50,000, you will need a valuation of at least $175,000 – and so on. You may also need to check on what your house is worth at today’s prices before you start looking. It’s better to be prepared.

Don’t borrow more than your business can repay – lack of capital kills a lot of businesses. Many franchises will insist on your having, say, 50% of the start-up costs in cash. Believe them – if they say you can’t afford their franchise, you can’t. They don’t want you to fail any more than you do.

Decide what your own goals are. If you operate them properly, most franchises should provide a fair wage for the hours you put in, a return on investment and a tax-free capital gain when you sell them. What do you realistically want to achieve in each of these areas? Can your chosen franchise deliver it?

Your business will not make money from day one – it may take several months or even longer to reach break-even. How long can you support yourself before you need to earn an income from it?

Essential reading

What to ask about funding
Facts about franchise funding