Buying a franchise can be a great business opportunity for new and experienced business owners. Franchises provide the opportunity to own a business that has a proven concept, policies and procedures in place, brand recognition, and ongoing support. This business model can provide owners with the opportunity to grow their business more quickly than if they were bringing to market a new brand or untested concept.
Depending on what type of franchise you are buying, there can be significant upfront costs. These costs may include the price of the business, franchise fees, working capital, and inventory. Many prospective franchise owners do not have the amount of liquid assets required by the franchisor. There are different ways owners can finance their purchase.
Business Development Canada
Business Development Canada is a financial institution devoted exclusively to business owners. They provide financing for a range of business expenses including
- Purchasing a business,
- Buying equipment,
- Purchase order financing,
- Transferring a business, and
- Working capital.
While traditional banks may be reticent to provide financing for a franchise purchase, Business Development Canada is committed to helping business owners be successful. In addition to business financing, the organization also offers advisory services to help with business management, revenue generation, and operational optimization. Acuity Business Group has worked directly with Business Development Canada on several occasions to help clients secure financing for a business purchase.
The Government of Canada offers a wide variety of financing options and grants specifically for business owners. Financial assistance includes grants, loans, capital investments, wage subsidies, private sector financing, and tax credits. Special grants can be accessed based on where your business is located, service and/or product offerings, and owner demographics. Similar to Business Development Canada, the Government of Canada also offers additional resources to help business owners with financial planning, accounting, and budgeting.
Family and Friends
It is not uncommon for business owners to approach family and friends for financial support when they decide to buy a franchise. This can be an exciting opportunity for people to be part of a business owner’s success! Before exchanging any funds, all involved parties should document in writing the terms of the loan including things like the loan amount, interest rate, and repayment terms.
It is important to remember that many Franchisors will insist that the buyer provide anywhere from 40% to 60% of the purchase price as liquid cash (i.e.: unencumbered cash sitting in the bank). They also require that buyers have initial cash on hand to pay for inventory, legal fees to put towards setting up a corporation and reviewing franchise documents, and more. The reason for this is that the Franchisor does not want the new Franchisee to take on too much debt. It can be stressful enough as a new owner to build the business up without having to worry about high debt payments.
Working with an experienced business broker can be a great way to determine the pros and cons of various financing arrangements and help get documentation in place to make a successful request. If you are ready to join the exciting world of franchise ownership, contact Acuity Business Group to learn more about how we can help!