franchising aspects Sep, 13 2010

Healthy Finances For Wealthy Franchise

If you aspire to be an entrepreneur but financial investment is holding you back and the biggest cause of concern for you, then do not give up your heart. Franchisors are there to lend a helping hand. Read on to find out more...

By Abha Garyali
Sub Editor
Healthy Finances For Wealthy Franchise

Franchising is creating a lot of buzz among the business aspirants these days. No doubt, franchising business offers rewarding opportunities to the young entrepreneurs, but insufficient finance is one of the biggest challenges for such young aspirants. Most of the franchise concepts require huge investments, which are difficult to arrange and discourage aspiring entrepreneurs to carry on with their entrepreneurial journey. To make things viable under such circumstances, lot of financial assistance is available. Franchisors are also offering financial assistance through banks, or third party to safeguard the interest of the entrepreneurs. The article elaborates on the various financial aids available and franchisor’s role in making these entrepreneurs a success.

Significance and need for financial assistance

Having realised the significance of finances in running a franchise business lot of franchisors has started providing support to the franchisees and aspiring entrepreneurs. However, it has been comprehended that only new and emerging franchise companies, which are very keen in broadening their franchise network, are more helpful in assisting entrepreneurs in taking their franchise rather than the established franchisors companies. Franchisors that are already successful and do not require to compromise on any issues with the franchisees are not willing to offer any financial assistance. The successful franchisors already have a wide existence and are generally not in a mood to expand. The franchisors who offer financial assistance to the aspirants are generally those who are developing and in initial phase of development.

Moreover it may be basically the low-cost franchises that are willing to help aspirants. Here we discuss the various financial aids available:

Banks

Getting loans from banks can be one of the best ways the franchise owners can help the aspirants in entering entrepreneurship. Franchisors who have taken loans from banks initially can help their franchisees to get loans for the same bank. Samit Lakhotia, Co-Founder and Director Strategy & Business Development, ClubLaptop highlights, “Franchisors can always arrange for bank loans or get the project approved from the banks.”

Bank loans can be provided easily if the franchisors assist in:

Creating the project report or franchise plans: The franchise owners may have experts in their organisation who can help aspirants in creating a business project which gets an immediate sanction from banks. Lakhotia says, “Franchisors should help the franchisees with project reports and make the loan approval process easier for the franchisees.”

Franchisors becoming guarantors: In many cases, franchisors can become guarantors of the franchisee. In this case, the aspirants should be extremely hard working and promising so that the franchisor feels that he can be successful in the later stages.

Third party loans: A significant number of franchisors provide financial help via third party lenders. In this era, when business is rapidly becoming a way of life, there are a lot of third party lenders. These money lenders may not be known to the new entrepreneurs but franchisors must have contacts with such assistance. Therefore, in genuine cases the franchisors can help the aspiring franchisees in getting capital from these third party lenders.

Franchisor providing funds: Although there are rare chances of this kind of support from franchisor, but if franchisors find an aspirant very promising, they provide the initial funding or can considerably reduce the initial franchise fee. Regarding this MRK Menon, Aero Sports states, “I want to provide employment to 1000 people so that they can earn a good living. For this I am ready to meet the aspirants halfway. If franchisees are able to provide the basic franchise fee, our company would provide them with much leverage also.”

Assistance in getting reasonable space: Certain franchisors help their franchisees by saving their money for rents in terms of taking a location. In this regard, Saurabh Shah, Head-Business Development, Sykes and Ray Equities informs, “If aspirants with limited resources come to us, we help them in many ways. We try to cut out the rental costs by accommodating the new franchisee in our offices. In our business (stock markets) where there is less use of big outlets, the franchisees with less investment can adjust with us or with any of our existing franchisees also.” This arrangement unburdens the franchisee from having to obtain the additional working capital for purchasing the land and/or developing the site.

Employment arrangement: Sometimes franchisors hire promising aspirants as their employees and later on turn them into full-fledged franchisees. As shared by Shah, “If an entrepreneur with limited capital comes to us we can surely help him in our ways. Initially we provide them with employment and keep cutting some amount from their salaries. This can make up the basic investment. Afterwards we make them our franchisees.” He further said, “In such a situation franchisees earn less in the beginning but we prepare them to be successful for their future.”

Minimum guarantee: Franchisors also provide their franchisees with minimum guarantee. It is a part of the franchise package which is decided before hand. However, the minimum guarantee cannot be taken for granted as it is time bound. A franchisee can enjoy it only when he is unable to make sufficient income from the new business. Franchisor keenly monitors the sales progress of the franchisee and accordingly, offers the minimum guarantee help. Minimum guarantee works as insurance for a franchisee to make his franchise business run efficiently. It is usually for the first year of the business but sometimes, it offers minimum guarantee support until the franchisee achieves the stated sales. And in most of the cases, franchisee starts earning the profit within a reasonable time span.

Revenue sharing model: Another successful model for financial aid of franchisees is the revenue sharing model under which the franchisor and franchisees share the revenues generated by the business. The revenue sharing as suggested by Shah, “Is in the ratio of 50:50 in most of the cases. However, in certain case the ratio may also range from 65:35, where franchisee gets the bigger share.”

Management contract: This is another model where in maximum investment is made by the franchisor and the management is taken care of by the franchisees. This is especially applicable in case of hotel franchises.

It is rightly said ‘where there is a will, there is a way’. If anyone is interested in taking up a franchise, shortage of funding is not an issue any more. So all you young aspirants go ahead and start franchising.

Related: Time to draw new customers to your store

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