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 - omplete with projected income and expense
figures
- through at least the first three years of business.
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 wre 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, 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 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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