Financing a business/franchise

H

hcnyLA

Guest
Hi,

I am currently working in a job that I despise and to be honest I really need to get out of it and the industry pretty quickly before I go insane. I do not want to change employers etc. as it's the same crap everywhere I go and this woould only be short term relief and anyway, part of the reason for me being here now is because the industry I work in at the moment is a tad quiet and there may be a possibility of redundancies by the end of the year or early next.

I'll give a little bit of background before I continue and get told the bad news that what I want to do won't or can't work!!

I'm 32 and have a salary of approx. €54K per annum. I have approx. €20K savings in the bank which seems to be stagnant for a year now as any surplus savings every month is eaten up by house refurbishments!!
I have a car with an outstanding loan of approx. €4K over the next 18 months.
I have a house but very little or no equity as it's only a year old and we all know how the housing markets been recently and I live in the commuter belt although I don't commute more than a few miles. I have no other debt.

Anyway, my scenario is this. As I said, I despise my job and can get very depressed thinking about it. I have always wanted to work for myself and I now think I have to try and find away to do that before I go demented in my current position.

I have done some research over the last few months and I'm nearly certain that I have found a franchise that would not only suit me but would have a high chance of being very profitable in the current catchment area as there is very little competition in the area. Course the problem with franchises is that you need to have quite a bit of capital upfront so herein lies my main problem.

I have approx. 16% of the initial startup capital myself. The franchisor recommends that you should have approx. 35% and bank loan the rest but I don't know how strict they would be on this. Would a bank loan me 85% of the start up costs, considering it's much lower risk than a conventional business start up as it's a proven business model?

I could probably find another €10K (another 8%) if I had to from other sources but effectively it would be a loan anyway as I would have to pay it back to the other sources!

I know someone will point out that I should stay with the company until I'm made redundant and use that as well but there is no guarantee that I would be let go and even if I was it would only be worth approx. €10K max to me as I haven't been there that long and there is no way, NO WAY of any description that I will be able to stick another 6-12 months at it.

Anyway, I haven't really asked too many questions but I need some advice on what I can and cannot do here. I don't want to approach the franchisor until I have a firm idea of where the capital is coming from and then see what they have to say. They may knock me back anyway but at least I'll go in there knowing what I'm talking about. Any advice would be greatly appreciated from everyone and anyone, especially franchisee's who have had similar problems to what I am facing.

Thanks.
 
From experience most banks will only lend upto 75% on a franchise and even then you will most likely need some other cash for living on until it becomes profitable.

Don't fall into the trap of starting a business just because you hate your job, it can often cloud your judgement.

Do you have any experience of running a business? If not you would be well advised to take some small business start up courses etc whilst still in employment. Also would it be possible to start a business part time whilst still in employment to give you a saftety net and allow you to dip your toe in the water?

Good luck,

Matt

www.betterbusinessresults.com
 
Do you know where I could find out more information on doing a small business start up course?

I have no experience of running a business but isn't that the whole point of a franchise as you have a proven business model to work from?

Does the recommended outlay by the franchisor not include some money for salary until the business gets off the ground? As I said, this is all new to me so the more advice I can get the better!

I'd love to be able to start this part time but I don't think that would be possible as there would be a lot of work initially to get it off the ground that you just couldn't sustain part time.

I could probably get the 25% needed alright but as you said, I would then have no money left for living expenses. Would I not even pay myself a small wage in the early days?? Wage of mortgage size would probably do as herself could feed me till it got going!!
 
I can totally understand where you are coming from. My two cents:

Make sure you have done out a business plan before you quit your job to see if the numbers stack up. Be wary of franchise fees that offer nothing more than a starter pack and their busines name, unless the business name is very strong (domino's pizza, mcdonalds). And factor into your plans having at least enough money in the bank to pay 3 months of bills (for your own living expenses and mortgage). If you have to raise more money consider selling your car if it is not a necessity for work.

If you are dead set on quitting your job, would you consider some other part-time work even if it is in a shop to keep some money coming in the door until you get the business idea off the ground. There is no point in substituting the stress of being in a job that you hate with the stress of money worries.

The best of luck with it. Let us know what you decide and how you get on.
 
You said it there yourself, you have no experience running a business and this is all new to you. Get experience in the industry you are going to enter. It will be invaluable when you do start up.

You seem a bit niave about the whole thing thinking its that easy to run a franchise.
 
I am under no illusion that it is easy to run a franchise or any other kind of business for that matter!! But everyone in business has to start somewhere. Richard Branson had no experience when he first started out.

Also, I have no notion of quitting my job, how ever much i despise it, until I am 100% sure that this is right for me. I mean it's a lot of money to be risking so it's not a decision I'm going to make today or tomorrow and I have a good bit of research done on this and it will all add up hopefully to me making the correct decision when I am ready!

But I accept all criticism and advice and if I am naiive then fair enough I'll accept that :)

The franchise in question, without naming anything would have a reasonably strong brand name but not up there with the superstars mentioned above!

Part time work is probably something I will have to consider to keep the shillings coming in at the begining although I don't know how viable this will be as I would imagine working all the hours god gives on starting up the business at the beginning but it is definitely something I will consider.

I want to speak to other of the same franchise holders to see how they are getting on as there are a few of them in the dublin area. I wonder how suscetible would they be to speaking to me without being a franchise owner?

Also, how do the franchisors pick the franchisee? Would they have a lot of interest in each area I wonder and do they make a decision on the best candidate through interview or are they happy once you aren't a complete imbecile and have the dosh in hand?
 
Hi hcnyLA,

I just read your thread there with some interest. Have you thought about getting a partner to invest? Is the franchise a "one man and a van" franchise or is it potentially a big business possibilty? If its big business then a partner might be the way forward. I have been looking at the franchise scene for quite a while but am finding it difficult to take the plunge into industries i know nothing about.

I have plenty of business experience having just sold a small business i set up a few years ago. (sold to partner because of opinion differences going forward). I also have access to capital and good biz experience, maybe we should have a chat????
 
You would be best to keep clear of some franchises ....I know a lot of people who invested in one , after visiting the franchise show in Dublin in Nov 04. None - not one - of the 15 or so people who "invested" a five figure amount - plus a year or two of effort - even made a decent living out of it. To add insult to injury the same English exhibitioner was back with a stand at the Franchise show the last time it was on...
 
Rabbit,

I read about this before in a different thread and it sounds like these guys need to be named and shamed, do you know who they are? I'd love a heads up!!!

hcnyLA,

I think despite all this there are some genuine franchises out there. My thinking would be to stay clear of franchisors who don't charge royalty fees because they have nothing to be gained by your success. Also, remember to check if they are approved by either the Irish Franchise Association or the British Franchise Association, if they won't approve them then there are good reasons why not. Another good thing to look out for is the gauranteed income, if they are confident of their business model they will gaurantee your results in the contract. Also, beware of franchises that are practically free to start up (i.e. 20 - 30k total investment) and offer massive returns (6 figure incomes). You reap what you sow, small investments will yield small results, even if you think your idea is amazing. Denis O'Brien started esat with 30Million in the purse and that was nearly 20 years ago.

Also, step outside the box before you invest in anything, your judgment may be cloaded by your determination. If a franchise costs €50k, imagine you had 50K to play with and your best mate asked you to lend it to him to buy this franchise, would you lend it to him having read the franchise prospectus? If not then you are not convinced its a runner........

Let us know how you get on.
 
rabbit said:
You would be best to keep clear of some franchises ....I know a lot of people who invested in one , after visiting the franchise show in Dublin in Nov 04. None - not one - of the 15 or so people who "invested" a five figure amount - plus a year or two of effort - even made a decent living out of it. To add insult to injury the same English exhibitioner was back with a stand at the Franchise show the last time it was on...
Click to expand...


I agree with everything that rabbit has said.
PM me if you like and I can give you my pennys worth of experience in a franchise situation
 
What is meant by "One man and a van" franchise?

I've sent you a PM
 
What I mean by man in a van is you don’t need a premises or staff, you just get in your van and do what you do. There are many of these available such as Fastway, ChemDry, Dr.Vinyl to name but a few.
 
hcnyLA

There are some great "Start your own Business" courses offered by the County Enterprise Boards. Most will have one starting in Sept/Oct - so now is a good time to get started. They are usually evening courses and are good quality (at least the one I deliver is ;)). Ring your local CEB to equire (they are in the main Cities and every County has one as well).

They also offer mentoring and advice which can also be very useful - even if it is just to bounce your idea off of somebody else. They can in certain limited circumstances also offer grants, I think it is unlikely in a franchise situation but you never know.

A proper business plan is key at this stage of your thinking. If the franchise you are looking at is a good one you should get a lot of guidance on this from the master franchier. The guidance may not be face-to-face but if thet do not offer pre-establishment guidance then I would worry.

Make sure it works before you worry about how to finance it. If it is good enough and you are committed enough then you will find the money somewhere. And if you run the figures and it doesn't work then at least you know.

Best of luck.
 
I run my own little business. Previous to it I went and got a job in a similar area to learn the ropes.

I cannot stress how thankful I am for doing that.

I also did the "start your own business" course run by FAS / DCEB which I thought was pretty useless (it's aimed at people who know absolutely nothing).

Find the time to work part-time in the area you're interested in. You won't regret it.
 
I also run my own small business and would agree with getting experience in the industry.

I worked part time for a small business before starting my own and some of the things I learnt there were invaluable. (including what not to do).

On another note, it is hard to make what would add up to a salary quickly so do keep this in mind.

I know franchises are more dependable because you are following a proven formula but you are also investing a lot more so if it does not work, the loss is much bigger.

I would consider (if you can) working part-time in the franchise you are interested in and try to get some inside information from staff what it is really like.
 
You must log in or register to reply here.
Back
Top