Acquisition finance is a form of funding that can greatly benefit the growth of any franchise business. As the name suggests it is a financial solution which allows a franchise to purchase another franchise for business growth purposes.
There are many reasons why an acquisition can benefit a franchise business:
- Market – by investing in an additional franchise you can increase the size of your market share with a new outlet and a wider client base
- Staff – increasing head count will bring better efficiency, wider knowledge base and an improved customer service offering
- Profits – an additional franchise will bring in a higher level of turnover and expenses can be split across the entire business so in turn produce better profit margins
- Suppliers – having extra franchise outlets means the business is in a much stronger position when it comes to purchasing items giving them a much stronger buying power.
- Competition – taking a larger market share results in becoming far more competitive and often being able to outperform similar companies operating in the same sector
Being able to purchase a second franchise with readily available funds is often unachievable without severely affecting cashflow. This is why acquisition finance is so important. It can fill the gap between the cost of the new franchise and the cash available within the business.
Acquisition finance can be structured in a number of different ways to suit the needs of the franchise business:
- Equity Acquisition – often deployed where cashflow is not always consistent, it explores the purchase of company profits through its share value.
- Debt Acquisition – a common form of debt finance, in essence the franchise is purchased but remains its own business and it operates as it always has.
- Mezzanine Finance – a combination of both debt and equity financing but with one advantage in that the debt is tax-deductible.
- Exit Finance – focuses on the company’s full value and also considers the potential future earning of the business.
To find out more about acquisition finance we have a team of experienced franchise finance specialists. Please call us on 01993 706403 or e-mail hello@ngifranchisefunding.co.uk.