There are two ways you can engage with a food franchise concept. You can buy a franchise from the franchisor and start new, or you can buy an existing franchisee out of their existing business. How you fund the purchase is the question which must be answered. Here are 9 ways to fund a food franchise:
Are your pockets full and your bank accounts stuffed? If you have the flexibility and cash flow you may want to throw in an all-cash offer. It is definitely a good way to get a franchisor’s attention in a situation where you are competing with others for the same territory.
Small Business Administration (SBA) loans are the most popular loan people will use to buy a food franchise. Most community banks must submit the loan to the SBA for approval. The key question you must ask a bank is if they are SBA preferred and if they do their own underwriting and approval for the loan. If they are SBA preferred and do the underwriting and approval, it will dramatically speed up the process and allow the bank to be flexible in completing the deal.
There are always investors and angel groups looking for the next big investment. If you are buying into a new and exciting franchise, drumming up interest in investor networks could work well. Negotiating a deal will be the key to partnering with investors. Working with accredited investors is important as they will likely have additional capital available if needed. They could also help in expanding faster if the concept catches on quickly.
There has been an explosion over the last few years in the crowd sourcing industry. The key to any crowd sourcing campaign comes down to planning, strategy, and offering. A strong strategic plan will engage your audience in multiple ways. Also, what are you willing to offer in exchange for an investment? It could be a free beer with a $20 donation or you get to cut to ribbon at the grand opening for a $2,000 donation. Get creative with your offerings and pricing to entice people to participate.
If you buy an existing franchisee out, seller financing is one of the highly preferred methods people use. If it is an existing business, it will speed up the process of the sale. It will also give the buyer some insurance that the seller will stick around for a smooth transition.
If you were diligent in funding a 401K over the years you now have another way to finance your new business. The first thought many of you may have is why would I do that and pay penalties, taxes or interest? You would do it because you won’t have to. By rolling your 401k into a business purchase you can see many benefits; speed to securing funding, the ability to pay yourself a salary, no need for loans, the business will be funded by pre-taxed earnings, $200,000 per year can be tax deductible retirement savings. These are a few of the many benefits. This is common in the franchise industry and there are existing services available to assist you. It is best to consult with your CPA and/or lawyer to get a full understanding of the processes and rules behind each of these benefits and more.
"Negotiating with another local business that has space for another concept within its current building can be beneficial to both."
You may see it and not even think about it. You fill up with gas, go inside to pay and grab some fast food from the chain within the station. Negotiating with another local business that has space for another concept within its current building can be beneficial to both. Synergy is the key in this concept and without it the combination may not work. You can cut down rent cost, have immediate foot traffic, and you might even find a partner or investor for current or future business endeavors.
Make an offering to investors for a food credit. Convince 15 people to invest $10,000 each and offer back $10,000 in food credit at the restaurant you are opening. If you can make it work you have $150,000 to put towards opening your business. Investors typically want a piece of the action, but you might be able to attract a group who are just excited about the concept or style of food you are bringing to the city.
Get strategic and use a combination of the above mentioned ways to fund your franchise. Perhaps you buy an existing franchise and get some seller financing. It doesn’t prevent you from using a SBA loan or some retirement funds as well. Maybe you start a new franchise and go the store within a store route. You could also combine that with investor or crowdsourced funds. You don’t know if it won’t work unless you ask or try. Food concepts in the franchise world can have a big variance in cost from one brand to another. Requirements will greatly vary from pedigreed franchisor giants to the new franchisor on the block with the new concept. You might need one million dollars in liquid cash just to get reviewed by a franchisor in one case. Then, there will be cases where the franchisor is just looking for someone who has the will and desire to be a franchisee and will do whatever it takes financially to achieve the ability to make the purchase. Remember to do your due diligence to make sure the franchisor is the right fit for you as well.
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