Taking on a franchise is an exciting step, but before any doors can be opened, a solid financial plan will be needed. A clear plan not only helps stay on track as the business is launched but also reassures lenders that the company understands the numbers.
Here’s how to get started:
Understand the startup costs
A franchisor will provide a breakdown of initial costs, generally this will include franchise fees, fit-out, equipment, marketing and working capital. This is the starting point. It is important to be realistic about what will be needed for the first 6–12 months, including rent, utilities, insurance and staff costs.
Having these figures laid out helps to avoid surprises and ensures the franchisee is asking for the right level of funding.
Forecast the cash flow
Cash flow forecasting is one of the most important steps. Map out expected income and expenses month by month for the first year. This should include:
- Sales projections (based on franchisor data and local market research)
- Operating expenses (staff, rent, marketing and utilities)
- Loan repayments and interest
- Any personal drawings or salary
A detailed forecast shows lenders that the franchisee has thought through both the best and worst-case scenarios and how they will handle them.
Factor in a contingency fund
Even with a franchise’s predictability, unexpected costs can arise. Building in a contingency (typically 10 to 15% of total startup costs) can give breathing space if things don’t go exactly to plan.
Plan for profitability
When is the expected break-even point? This is a key metric for both business owner and the lender.
Using cash flow projections to determine when revenue will consistently cover expenses is important. Understanding the breakeven point helps to make better decisions on pricing, marketing spend and staffing levels.
Consider the funding mix
Calculations should be made on how much of the initial investment will come from own savings versus external finance. Most lenders will want to see an investment to be made from some of the franchisee’s own capital, it shows commitment and reduces their risk.
At NGI, we work with a panel of lenders who understand the franchise sector. This allows us to match first-time franchisees with finance products tailored to their needs, including:
- Loans to cover franchise fees and startup costs
- Equipment and vehicle finance
- Working capital facilities to support cash flow in the early months
Review and update regularly
A financial plan isn’t something to be created once and then forgotten about. Best practice is to review actual performance against forecast each month and adjust plans where necessary. Staying on top of the numbers helps to spot issues early and stay in control of the business.
Recently, NGI Franchise Funding completed detailed business plans for a group of franchisees starting their own mobile coffee franchise. Each plan included three years of financial projections, providing a clear roadmap for revenue, costs and profitability. This robust planning not only gave the franchisees confidence in their new ventures but also enabled them to successfully secure Government Start Up Loans to cover initial franchise and setup costs. In addition, the plans supported applications for lease finance to purchase fully converted coffee vans, equipped to serve barista-quality espresso drinks, hot and cold snacks, sandwiches, and cakes. This ensured the franchisees could launch their businesses with the right tools in place.
For financial planning why not call our dedicated franchise business finance team on 01993 706403 or e-mail hello@ngifranchisefunding.co.uk.