Some of Franchising's Most Frequently Asked Questions and some special feature articles
Special Feature Article - February 2011
How to Approach a Bank Manager for a Loan
For most of us a trip to see the bank manager is like having a tooth pulled, a necessary evil. It doesn’t matter if you’re looking for finance from $50k or $5m the same feelings apply- a loss of control and failure if you are not successful in your application. However, the sheer elation of having your application approved gives you the same rush as skydiving from 10,000ft!!!
The emotional rollercoaster can be very draining and may even cause you to think twice about whether or not you really do need the funds; or can you reduce costs or even wait another six months. Does it really need to be this way??? The real question is how much time are you willing to invest to increase your chances of being successful with your application?
Here are my key strategies for tilting the scales more in your favour!!!
Strategy #1 – Preparation, Preparation, Preparation
The key here is to wear the bank managers’ shoes and review your application as if someone else were to present it to you. Keep in mind that most applicants are full of enthusiasm, excited about their new venture or expansion plans and usually pretty optimistic that they will be given the ‘green light’. Now the bank manager is typically somewhat restrained with their emotions (please don’t take any offence my friends in the financial services!!) and are not quite jumping out of their skin when they have poorly prepared plan in front of them or if you are not able to answer their questions. You must do your homework and be confident.
Strategy #2 – A Well Constructed Business Plan
It’s a well-known fact that your bank manager really does want to lend you the money and it is really rewarding for all if that happens. Many business entrepreneurs think that they must engage the services of a trusted CA or CPA, and spend more money on an elaborate business plan than they spent on their wife’s engagement ring. All this to impress the bank manager. Well the truth here is that you certainly do need a trusted business advisor on your side and the bank manager will be impressed by the fact that you recognised the need for expert advice in the planning stage. How to select a trusted business advisor is whole other subject.
With the information made available to prospective franchisees through the web, directly from the franchisor and through the Disclosure Document, you should be able to gain information on the key operational matters of which to construct your business plan. Some components are:
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Type of business
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History of the business
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Background of directors
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Objectives and direction of the business
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Operations and location
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Market segment
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Market analysis and marketing plan
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Capital requirements and ROI
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Full description of the products and service offerings
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Cash flow – projections
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Financial analysis
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Customer demographics
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Management Structure – key personnel
Your business plan should also take into account your strengths and weaknesses and how you plan to fill the ‘gap’ in your weaknesses. It may be a case of stating for the record that you intend to hire a manager with different skill sets to balance the operations.
Cash flow is king and you need to be able to demonstrate that you have a reasonable understanding of the projected cash flow and how much working capital is required to maintain the day to day operations.
Finally, your business advisor needs to probe and ask the tough questions about your business plan; ‘like what happens if sales drop by 20%?” and review every aspect of your document, if you do this then your dealings with the bank manager will seem like a walk in the park.
Good luck and remember the key is to pack and re pack that parachute, after all you only get one chance to make sure everything is ready before you step out of the plane!!!!
For more information on preparing business plans please Click here to contact Mark Fernandez, Director of Business Development Alliance
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QUESTION: We have a disagreement with our franchisor. We do not agree with the way the franchisor uses our marketing budget - we think there should be more local advertising. Is there anything we can do?
ANSWER:
The marketing budget to which a franchisee contributes is usually set out in the disclosure document and franchise agreement.
The actual way in which the marketing budget is spent is determined generally by the franchisor and is not usually for local area marketing which is left to the franchisee to pursue separately.
A franchisee should raise the issue of concern firstly with the franchisor and see if the franchisor is willing to deal with the matter. Put your issues in writing and invite a written response. Review the response in light of the obligations set out in the franchise agreement and operations manual.
If the matter is not resolved you can pursue the issue via the dispute resolution provisions under the Franchising Code of Conduct. Clause 28 of the Franchising Code of Conduct sets out the general dispute resolution provisions.
You could also seek legal advice to identify the issue and whether you are within your rights to take the matter further.
This response was provided by Wisewould Mahoney Lawyers
QUESTION: I am starting a new business venture - and am interested in franchising in the near future. How does one go into franchising? What is the first step I need to take?
ANSWER:
There are some very simple questions to ask yourself if you are thinking of becoming a franchisor. We often send these out as a 'thought starters' to business people that are considering the franchise adventure. Some of these questions will be easy to answer, while others a little more confronting. To be in the zone you'll need to have at least considered an answer to all of them.
If yours is a 'new business venture' then considering franchising, 'in the near future' could be a little harder than expected. The key to being able to sell any franchise business is that the model has been proven in the marketplace. As a potential franchisee I want the security and piece of mind that the business actually works, and the easiest way for me to do that is to have seen it work, in most instances for at least 12 months so I can see the annual cash cycle of the business. In some business cases, dependant on the business category, we would suggest you have multiple test outlets running to also prove the model in different locations.
Well here are a few questions to get you started.
• Are you familiar with the Franchising Code of Conduct?
• Have you run a pilot business? If so how long has this business been running for? (List each outlet if there is more than one).
• Have you conducted feasibility studies, can you prove your product or service has the potential for growth?
• Have you considered how many territories/outlets you may have?
• Are you considering expanding into other states, overseas?
• Have you discussed Franchising with a Franchise Lawyer and Franchise Accountant?
• What IP protection do you have in place?
• Have you considered what how you will structure your company?
• Have you considered how many years the term of your Franchise Agreement will be?
• Have you considered how much your royalty fees will be and if these will be fixed or percentage based?
• Have you considered what type of territory you will have; i.e. exclusive, marketing etc?
• Are you intending to have a marketing fund and if so have you considered what the royalty fees will be and if it will be fixed or percentage based?
• If you are a retail outlet have you considered who will hold the head lease?
• If you are a retail outlet who will be responsible for finding a suitable suite?
• What are your current supply arrangements?
• Do you currently manufacture any of your own products?
• What documentation do you currently have in place;
• Operations Manual
• Sales and Customer Service Manual
• Marketing Manual
• Other, please specify
• Do you have a current business plan, if so does this incorporate the transition to a franchise model?
• Have you considered how to administer the franchise fees and reporting process?
• What staff do you currently have in place and are you intending change this under a franchise model?
• What sort of induction training do you currently have in place or have you considered?
• Have you considered how you will recruit new franchisees?
• How would you describe your current company culture?
• Are you willing to make the transition from being a business owner to a franchisor (people person).
• Do you have adequate capital to fund the initial stages of franchising?
• What is your point of difference against your competitors?
• Are you willing to share your success with others (franchisees).
This response was provided by The Edge Corporate Strategies
To find more tips and advice from Troy Hazard just click here
QUESTION: My hubby and I have been given an opportunity to purchase a franchise in an area he has always wanted to get into. I was wondering what type of information is the franchisor obligated to provide before we make our decision?
ANSWER:
Prior to entering into a Franchise Agreement or prior to a Franchisor receiving a non-refundable deposit relating to the franchised business, the Franchisor must provide a prospective Franchisee at least 14 days before entering into a Franchise Agreement, a Disclosure Document and a copy of the Franchising Code of Conduct.
The purpose of a Disclosure Statement is to provide a prospective Franchisee with current information that is significant to the operation of the franchised business in order to assist the prospective Franchisee to make an informed decision about the franchised business. The Disclosure Document must be set out in the form prescribed under the Franchising Code of Conduct and must contain the information required under the Franchising Code of Conduct about the franchised business.
The Franchisor may also provide you with some marketing information about the franchised business and copy of the Lease for the business premises. Normally the Franchisor will require you to sign a form, Confidentiality Agreement, prior to giving you the above documentation
This response was provided by Mason Sier Turnbull
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