How to know your financially ready to purchase a business.
I asked our Franchise Finance Broker what his top tips were for those people looking to start or purchase a business.
Adrian’s top 4 tips for any new business client in today’s climate.
1. Build your team – Accountant, Broker, Solicitor, Business advisor – good advice will save you time and money.
2. Reduce personal debt – a low personal debt position makes life easier when you are starting a new business and lending funds for business purposes.
3. Keep your credit file clean – all credit files now keep a running balance of lending repayments for 24 months and it can affect your score.
4. Cash flow is king – one of the most important documents to discuss with your accountant is a 12 month cash Flow forecast.
Research and due diligence are absolutely needed when you are looking to purchase a business or a franchise.
There have been many times when I thought I have found the perfect Franchisee, and they also have thought we were the right business for them, and when it came to the final step of them trying to get finance, for whatever reason, they weren’t able to.
That’s why it is so important to make sure this is one of the first things you do, see if you are financially fit to be able to get finance.
Take some simple steps to prime yourself for success as a new franchisee because the foundations will be crucial for the business you build and the achievements you celebrate.
Here are Karin’s 4 steps you need to consider and action before you do anything else.
1. Know what your financial position is.
Take the time to assess your assets, that’s your house, car, caravan, holiday house, (we all wish) and then look at your debts and your mortgage, so you can see where you are in your debt and asset ratio.
Also take into account your current living situation, and what it costs to maintain it. We’re all guilty of underestimating our expenses and that can cause havoc with plans. So be brave, work out the true state of your bank balance, and then be prepared to be honest with any financial institution.
2. Know your costs.
If you have been honest about your current finances, you’ll have a good idea of how much money you can afford to invest in a business.
Some of you may already have substantial savings because you’ve been planning to purchase a business for some time, well done if that is you. If it’s not, it is never too late, take it from me, I do know.
You need to take into account all costs, not just the upfront costs. We can provide you with a template that covers most costs that you are likely to incur, such as legal and accountancy costs. Working capital is crucial for a business to tide you over in the early days, so that needs to be accounted for too.
It’s important to evaluate any franchise business with these extra costs in mind.
3. Seek advice from Franchise savvy institutions.
If it’s a Franchise business that you think is the best model for you, it is vital that you seek advice from Franchise savvy institutions.
This is particularly relevant if you’re a first-time business owner. Why not tap into expert advice from someone who can point out anomalies in the figures you have collected, who can make an assessment about financial viability, and who is acting on your behalf. It is worth spending the money on an accountant or business adviser who is a specialist in franchising because it may save you money in the long term.
4. Finding the funds
When you feel you are confident that you are in a position to continue, and you know what your costs will be, and you have a good sense of how you will make money in the business, then it’s time to approach the bank or finance broker with your business plan.
Wheel Change U can provide you with a business model template.
We also can provide you with access to Franchise Finance Brokers and lenders who understand franchising and they also understand the Wheel Change U business model.
Please don’t hesitate to call me if you have any further questions.