So you’ve got a successful, promising business on the ground and running, and you’re looking for the best way to leverage that start and maximize your business growth. Unfortunately, expanding your business requires a lot of capital for every additional store you open, and after the recent financial crash, it’s even harder to find the up-front capital needed to grow your business across the country. The answer is simple: franchising.
Of course, you shouldn’t jump into any business endeavor without knowing how you’ll benefit. Knowing the ins and outs of franchising is crucial before you dive in. Franchising may benefit you if you have a fresh, successful business that you’re looking to make even more successful via quick growth. Some of the benefits of franchising include:
Enlisting franchisees means that you can open new locations faster than if you were handling it all on your own. Franchise owners handle the staffing, marketing, and day-to-day operations of their respective stores, while you handle growth from the top down. You have a fighting chance at saturating the market when you’re able to focus entirely on your expansion plan and outsource the rest.
Less Financial Burden
When you expand via franchising, you’re transferring the financial burden to the franchisee, who pays a fee and commits to a contract. That fee offsets the cost of opening and operating a new business location.
Franchising lets you effectively grow your business without taking on the debt involved with opening dozens or even hundreds of new locations. You profit more, which means that you’re able to put even more funds back into growth.
Franchisees usually operate as a store leader, and they’re more motivated to succeed than the average store-level management because they have a financial stake in the location’s success.
Each franchisee wants to grow their profits and see their stake returned in dividends, so they’ll put the effort into continuing education and hands-on, day-to-day operations in a way that outside managers might not. In fact, franchise owners outperform outside store managers by up to 30 percent.
Funding Solutions for Your Franchise
Even though expanding via franchise lets you offset a huge part of the expansion expenses, you still need up-front capital for maintaining the flagship store, building a business development plan, drawing up legal documents for franchising, and marketing your franchise.
It can be hard to acquire all the capital up-front from a traditional bank loan because the standards tend to be rigorous, requiring perfect business credit and extensive collateral. If you haven’t been in business that long, chances are that the collateral just isn’t there. So where do you turn? You need to seek alternative funding solutions.
Working Capital Loans
Your best bet is seeking out a working capital loan from a lender that specializes in funding small businesses.
Working capital loans are convenient for businesses that are relatively new and looking to expand. They don’t require long-established business credit, and often these lenders offer funding to businesses that have been in business for less than a year, letting you expand rapidly while you’ve still got the momentum of new business hype.
The repayment terms are also more convenient for new businesses, often asking a small percentage of all daily gross sales until the loan is repaid, whereas traditional banks require large monthly repayments that don’t scale with your sales: if you have a slow month, traditional bank repayments can hit hard.
Business Line of Credit
If you’re not 100% certain of the amount of funding you’ll need, then consider a business line of credit for funding your franchise. You’ll be approved for the maximum amount your business qualifies for, depending on your personal and business credit history. But instead of being liable for interest on the entire amount of the line, you pay interest only on the amount that you use.
For instance, assume that you have a business line of credit at $50,000. You need to charge a $10,000 purchase order one month, and nothing at all the next month. In that case, your business line of credit ensures that you’re only paying interest and fees on the $10,000 of funding that you’ve used.
The remaining $40,000 of your credit availability is there until you need it, so the next time you have a slow month or an unexpected expense, you’re covered and don’t need to scramble for funding.
The Bottom Line
The biggest reason you should franchise is simple: the benefits outweigh the risks. You benefit from expedited expansion; an alleviated financial burden; and store-level management that’s motivated to succeed.
If you’re hesitating because of funding, know that your franchisees are ready to take on a significant portion of the cost, and multiple funding solutions are available to you to cover the rest. If you’re serious about expanding your business, there’s no better time to take the leap than now.
Call Mulligan Funding today to find out more about our working capital loans!