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How often have you thumbed through a business opportunity
magazine, noticed a franchise opportunity advertisement, and
felt you'd really like to get in on that... if only you had
the money? If you're like most who are seeking greater
opportunity and wealth, this probably happens with you more
often than you care to admit, except perhaps in strictly
private conversations.
When the average person sees one of these opportunities, or
comes up with a similar idea of his own, the problems of
start-up capital may seem formidable. But in reality, they
may not be. In fact, just about anyone with a good credit
record and an "insider's sense of business" can get
the capital he or she needs, whenever it's needed. The secret
is in knowing how to put together a proper proposal, and to
present it to the right person. These are the
"how-to" instructions we're going to give you in
this report.
The first thing you're going to need is a complete business
plan. This is a complete and detailed description of exactly
how you intend to operate the proposed business. Your
business plan should detail precisely the product or products
you plan to seek; how you're going to produce or manufacture
the product; your costs (inventory costs if you're purchasing
them from a supplier); who is going to sell those products
for you; how they're going to be sold; the attendant costs;
when you expect to recoup your initial investment; your plans
for growth or expansion; and the total dollar amount you're
going to need to make it all work according to your plan.
Your business plan must be detailed - complete with projected
income and expense figures - through at least the first three
years of business.
Now, assuming you have your business plan all worked out,
put together and ready for presentation with your request for
capital. let's talk about your capitalization proposal.
First, keep in mind that whenever you ask somebody for money,
whether it's for a small personal loan or a large amount of
money to finance a business, you're involved in a selling
situation. You have to prepare a "sales
presentation" just as if you wre getting ready to sell
an automobile or refrigerator. Within this sales presentation
you must have all the facts and figures; you must anticipate
the questions and the possible objections of the prospective
lender with answers or explanations; and you must
"package" it as impressively as you would yourself
for an audience with the president of IBM or General Motors.
The more money you ask for, the more "in-the-know"
will be the people you want to borrow from, and so the more
detailed and organized your proposal must be. This shouldn't
cause you too much worry however, because you can hire a CPA
to help you put it together properly, once you've got the
facts and have a business plan he can work from.
Look at it this way: The more money you request for your
business, the more your lenders or prospective investors are
going to want to know about you, your planning, and your
business. They want to be impressed with the fact that you've
done your homework; they want to see that you've researched
everything and documented your facts and figures; they want
to be assured by your presentation that investing in your
business will make money for them. It's just that simple at
the bottom line. Unless you can instill confidence in them
with your business plan and loan or investment proposal,
they're just not going to give much positive thought to your
request for capitalization.
So you'll need a balance sheet describing your net worth -
the worth of what you own compared to the amount of money you
owe. You'll also have to prove your stability and
money-management talents relative to how successful you've
been in paying off past obligations. If you have had credit
problems in the past, get them "cleaned up", or at
least explained on your file at your local credit bureau
office. Under the law, credit bureaus are required to give
you all the information they have about you in their files,
and it's your right to correct any errors or enter
explanations regarding negative reports on your credit. Do
this without fail because prospective lenders or investors
will definitely check your credit history.
So, now you have your balance sheet prepared; your credit
history organized in a light that's favorable to you; your
business plan (with costs and income projected over the
coming three years), you're ready to start looking for
lenders or investors.
Almost all franchisers offer help in setting up with one of
their franchises. Most will go out of their way to assist you
in getting the financing you need. some will lend you the
entire amount, with payments coming out of the income they
expect you to make from their franchise operation. Many will
carry this loan themselves, while others will carry part of
it and find you a lender to finance the remainder.
Franchisers have two objectives in mind when they offer
franchises to the public: They are trying to expand their
operation, thus increasing their profit, and they are trying
to raise capital for themselves. Generally speaking, if you
have a good credit history, and if they feel you have the
necessary business personality to achieve success with one of
their operations, they'll do everything within their power to
get you in a franchise outlet. Keep this in mind the next
time you see an advertisement or a promising franchise
opportunity requiring a substantial amount of cash outlay.
You don't necessarily have to have all the money. They want
you, and they'll help you!
Many people seem to be unaware that most of today's
largest corporations started on a shoestring - on borrowed
money. Many people seem to feel that unless they've got it
all "in hand" in savings, then they'll have to keep
plugging away until they can save up enough to take the big
plunge. Nothing could be farther from the truth. Just a quick
bit of research will show that 999 out of every 1,000
businesses were begun on borrowed money.
Look to your family and friends for financial help. Approach
them in a business-like manner; tell them about your idea or
plans, and ask them for a loan. Agree to sign a formal
statement to pay them back in three, five or ten years, with
interest.
When you have your proposal assembled, you might even want to
think of a limited partnership or even a general partnership
arrangement as a way to finance your project. In any kind of
partnership, each partner shares in the profits of the
company, but in a limited partnership, each person's loss
liability is limited to the amount of money he initially
invested. The truth is, in this kind of situation, you'll be
doing all the work and sharing your gain with your partners,
but then it's a fairly sure way to obtain needed financing.
Another common method of obtaining business financing is
through second mortgage loans on a home or existing piece of
property. Say you purchased a home ten years ago for $35,000,
and today the assessed valuation is $85,000, with a mortgage
of $25,000 still outstanding. A lender may consider your home
to be security or collateral for a loan up to $60,000. In
many instances, this is the easiest and surest way to getting
the money needed for franchise or other business investment.
And, it makes sense; you've got "net worth"
available that is doing nothing but sitting there. Take this
equity and invest it in a worthwhile business, and you could
double or triple your net worth each year for the rest of
your life.
Deciding to obtain second mortgage on your home in order
to finance a business opportunity is without doubt a major
decision, but if you are sure about your investment project,
and are determined to succeed, you owe it to yourself to go
ahead. You could incorporate yourself, borrow money from your
family through a second mortgage on your home, and protect
against the loss of your home through the Federal Homestead
Act. The important point here is that all business
opportunities involve risk and sacrifice. It's up to you to
determine the feasibility of your success with your proposed
venture, then decide on the best way possible to proceed.
In every instance where you run into reluctance on the part
of a lender to lend you the money you need, explore the
feasibilities of "two-name" or
"co-signed" loans. You can have the franchiser sign
with you, or one of your suppliers, a business associate or
even a friend. Oftentimes you can borrow or rent collateral
such as stocks, bonds, time certificates, business equipment
or real estate, and in this way give greater confidence to
the lender in your abilities to repay the loan. Whenever you
can show a contract from someone who has agreed to purchase a
certain number of your products or services over a specified
period of time, you have another important piece of paper
that most lenders will accept as collateral. Still another
possibility might be to get a bank or a firm that has loaned
you money in the past to guarantee your loan. They simply
guarantee that they'll lend you money in the future if ever
the need should arise.
Going straight to your neighborhood bank, applying for a
business loan and walking out with the money is just about
the most unlikely of all your possibilities. Banks want to
lend money, and they must lend money in order to stay in
business, but most banks are notoriously conservative and
extremely reluctant to lend you money unless you have a
"regular income" that "guarantees"
repayment. If and when you approach a bank for a business
loan, you'll need all your papers in order - your financial
statement, your business plan, credit history and all the
endorsements you can get relative to your succeeding with
your planned enterprise. In addition, it would be a good idea
to take along your accountant just to assure the banker that
your plan is verifiable. In the end, you'll find that it all
boils down to whether or not the bank officer studying your
application is sold on you as a good credit risk. Thus you
must impress the banker - not only with your proposal, but
with your appearance and personality as well. In dealing with
bankers, never show an attitude of doubt or apology. Always
be positive and sure of yourself. However, don't come on so
strong to them that you're either demanding or overbearing.
Just look good, know your stuff, and project an attitude of
determination to succeed.
Your best bet, in attempting to get a business loan from a
bank, is to deal with commercial banks. These are the banks
that specialize in investment loans for going businesses,
real estate construction, and even venture programs. Look in
the yellow pages of your telephone or business directories;
call and ask for an appointment with the manager; and then
explore with him the possibilities of a loan for your
project. One of the "nice things" about commercial
banks is that even though they may not be able to approve a
loan for your business ideas, they will almost always give
you a list of names of business people who might be
interested in looking over your proposal for investment
purposes. A lot of commercial banks stage investment lectures
and seminars for the general public. If you find one that
does, attend. You'll meet a lot of local business people,
some of whom may be able to and interested in helping you
with your business plans.
When you're looking for money to move on a business deal,
it does not really matter where the money comes from, or how
it all comes about. It's important that you GET the money,
and at terms that are suitable to you. Thus, don't overlook
the possibilities of an advertisement for a lender or
investor in your local papers. Place your ad as well in
national publications reaching people looking for
investments. Other avenues to seriously consider are
foundations that offer grants, local dental and medical
investment groups, legal investment groups, business
associations, trust companies and other groups or
organizations looking for tax shelters.
Basically, it isn't a good idea to go to a finance company or
other commercial lender of this type for a business loan. The
most obvious reason is the high interest rates you have to
pay. These companies borrow money from larger money lenders,
and then turn around and lend it to you at a higher interest
rate than they pay. Herein lies the means by which they make
money from granting loans to you. The more it costs them to
provide the money for you, the more it's going to cost you to
borrow their money. The only element in your favor when
borrowing from one of these agencies is that most will
generally lend you money against collateral other lenders
just won't accept. Insurance companies, pension funds, and
commercial paper houses are not too out of sight with their
interest rates but they generally will not even consider
talking to you unless you're requesting $500,000 or more.
They'll also pretty much require that your business proposal
be backed by the best possible plan.
Finally, the bottom line is this: You must have a
well-researched and detailed business plan: you must have all
your documents and projections put together in an impressive
presentation; and then you will have to be the one who does
the final selling of your proposal to the investor or lender.
This means your appearance, personality and attitude, because
- make no mistake about it - before anyone lends you any
sizeable amount of money, they're going to want to take a
close look at you personally before they hand over the money.
Actually, the different ways of financing a franchise
opportunity are as many and varied as your own creativity.
The sources of obtaining money are virtually limitless, and
available to anyone with an idea.
One word of caution before you jump into any franchise
purchase agreement: The price you pay to participate in a
franchise operation is not always the total cost involved in
getting the business off the ground. With some franchise
operations, you may find other costs such as down payments on
the purchase of property, building construction costs,
remodeling or site improvements, equipment, fixtures, signs,
advertising, and training. Virtually all franchise deals
require that in addition to the purchase price or the license
fee of the franchise, you're required to give a certain
percentage of your gross business income to the franchiser,
plus payments for promotion and administrative costs. Above
all else, before you get involved in a franchise, or any
business venture for that matter, make sure you've conducted
a complete and thorough investigation of the opportunity
presented. If it's a good deal, then go with it; but if you
have any doubts or feel as though you're getting in over you
head, back off and look around for something not quite so
ambitious, or perhaps expensive.
There are a lot of good franchise opportunities and some not
so good. It's important that you be sure of what you're
investing in, and that you can make money with it. From
there, preparing the proper business plan and the necessary
financing, while not always a snap, can be done. Now's the
time to do it! We wish you outstanding success with your
franchise business.
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