Creative Franchise Financing in a Credit-Challenged World
You can be your own boss, own a franchise, and achieve your dreams for less than you think.
Part 3: Let's Do the Numbers
You want to be your own boss, you have lined up some of the money needed to start up a franchise, now it's time to run the rest of the numbers.
In this example, the franchisor's estimated start-up costs are $200,000. The entrepreneur (you) has $50,000 in savings and is seeking $150,000 in additional financing.
Can It Be Done? Yes, It Can!
The $200,000 includes equipment, rent, supplies, inventory, the franchise fee, training, location selection, build out and working capital. If you have just $50,000, where do you get the other $150,000? Here is an example of what that might look like.
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$60,000
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for equipment.
Answer: LEASE. Rather than purchasing $60,000 of equipment, the owner leases the equipment required for the business for around $2000/month, depending on terms.
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plus
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$60,000
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for rent and improvements.
Answer: LANDLORD. In exchange for a five-year lease, the owner negotiates an improvement allowance of $40,000 from the Landlord in addition to three months free rent for a total value of $60,000.
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plus
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$20,000
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for inventory and supplies.
Answer: VENDOR. The company vendor(s) extend a low-interest line of credit for the first $15,000 in inventory. In addition, they put $5,000 toward marketing for the grand opening.
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plus
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$10,000
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for other costs.
Answer: CUSTOMER. Pre-opening sales and contract/enrollment can generate the balance of start up costs needed to open the doors.
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This scenario brings your out-of-pocket costs down significantly. Now you have covered the additional $150,000 needed. At the same time, you have reduced your monthly costs so you can grow your businesses from a stronger financial position.
See also Part 1: The Business Loan: Your Capital, Collateral, and Your Credit Score, or Part 2: Getting Creative – People want to help you succeed, so ask them.
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