Tuesday, December 4, 2007

HOW AND WHERE TO GET MONEY FOR A FRANCHISE IDEA

HOW AND WHERE TO GET MONEY FOR A

FRANCHISE IDEA

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 per son. 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 sell; 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. For more

details, and "how-to" instructions, see our re port, HOW TO

PREPARE A PROF IT ABLE BUSINESS PLAN, report #3503.

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 were 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'vere searched 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 franchisors 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.

Franchisors 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 for 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 just 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 a

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 of 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 a 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 Home stead 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 franchisor 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 you r 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 an other

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 you 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 size able 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 franchisor, plus extra 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 your 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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