How a Franchise Agreement and a Franchise Disclosure Document differ
There are two documents that are of vital importance...
Unless you have enough personal savings to finance your franchise dreams, you will most likely need to seek funding from a lender, investor or government-backed entrepreneur program. Whichever you choose, you will need to give them confidence in your ability to make a success of your chosen business to secure the funds that you will need to get your business launched.
Keep in mind that one of the main reasons businesses fail is because they underestimate the capital that is required to launch the business [1].
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Prepare
A lender will be more inclined to provide you with the capital that you need if you can demonstrate a sound grip on your finances. You should present yourself as a low-risk candidate by preparing all of the information that a lender is likely to need in advance of them asking for it.
You should prepare a resume that will explain how your education and career history have equipped you to become a business owner, proof of residence, financial statements and tax returns for at least a three-year period, along with your credit report. You will also need to present potential lenders with your business plan.
You should be prepared to answer questions related to your ability to repay the loan, how you plan to use the funds, any collateral that you could use to secure a more favourable rate, and your credibility as a business person.
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Business plan
Your business plan will demonstrate to lenders that you have undertaken due diligence and can demonstrate that your business venture will be an appropriate use of their funds. You will need to detail the costs, products and competition related to the franchise that you wish to buy into, how you will structure and manage the business, how you will market and promote it, and the basis for your financial projections.
If you have already been provided with a Franchise Disclosure Document, it is likely that much of the information you need will be available in this document.
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Choose your lender wisely
For a new entrepreneur, seeking a loan, grant or financing from the Business Development Bank of Canada (BDC) can offer a range of benefits as this particular lender is a Certified B Corporation with a strong focus on social benefits as well as profits.
An alternative is to apply for the The Canada Small Business Financing Program, which is specifically set up and backed by the government to support small businesses to get the loans they need to launch by sharing the risk with the lender.
Franchisor financing is another way in which a new franchisee can launch their business. In this situation, the franchisor would lend the prospective franchisee a sum that would allow them to purchase all items that will be needed to run the business, with repayments being made by way of interest on sales.
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Resources:
[1] https://www.investopedia.com/articles/personal-finance/120815/4-most-common-reasons-small-business-fails.asp#:~:text=The%20most%20common%20reasons%20small,model%2C%20and%20unsuccessful%20marketing%20initiatives.
