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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. For more
details, and "how-to" instructions, see our report,
HOW TO PREPARE A PROFITABLE BUSINESS PLAN.
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'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 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
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 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 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, remodelling 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 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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