How to raise money to start your franchise

If you want to start your own business but don't have that million-making idea - or if you just need a little support in the early days, a franchise could help you realise your entrepreneurial dreams. Franchises have also become increasingly popular post-redundancy: if you have a small nest egg to invest into a new business, a franchise is definitely worth considering.

Of course, taking the decision to start a business could be one of the most important ones that you make and as such you need to be honest with yourself to find out if you are cut out to be an entrepreneur. Some pointers as to what you should consider would be -

• Take a critical look at your strengths and weakness - are you sure you have the capacity, temperament and skills to run your own business?

• Make sure you have the full support of your family - do not underestimate the additional responsibilities and demands on your time which will inevitably cause some strain

• Ensure you have sufficient capital - you will need at least a third of the start-up costs and half for a less established franchise

• Obtain a full list of existing franchisees - don't just speak to those suggested by the franchisor, they may be the only ones that are successful - visit where possible, but at the very least ask them how their business is performing and what support and service is being provided by the franchisor

• Examine how well known the franchise and its service/product are.  A good reputation is a head start in business

• Look at the market as a whole - find out who your competitors are and how strong their position is

• Examine costs closely, in particular the franchise fee and monthly management fee, and whether they are reasonable and value for money; will the margins be sufficient to support the business after payment of regular fees to the franchisor?

• Is the training provided by the franchisor sufficient to enable you to run the business successfully?

• Seek professional advice from an accountant about income and profit projections and from a solicitor about the legal agreement. Both should have a good understanding of franchising and preferably be affiliated to the British Franchise Association.

While running a franchise is not without its risks, the good news is that if you are looking to raise finance for a franchise then in the majority of cases you should not have too much difficulty - provided you have a sound credit history and a robust business plan. You should approach a bank that has a dedicated franchise department.

Here are the advantages of doing so:

• The franchise department will have a good knowledge of the franchise, how it has performed over the years, what the business plan should include and how the franchise will perform in the early days and will look to structure any offer of finance accordingly

• For established successful franchises you will be able to raise a greater level of finance for your start-up costs and working capital requirements. For example this could be up to 70% of the total finance required. For new franchises the figure will be around 50/60%. This compares well up against raising finance for an independent start up business which does not have a brand and a proven model behind it

• Any application for finance and the whole process of getting your business banking relationship established will be handled by a manager with experience of franchising and knowledge of the franchise that you are starting up

• There may be other related banking products which are offered on special terms to franchisees

NatWest has the longest established dedicated Franchise department of the banks and recently launched a £100m Franchise Fund in order to help boost the sector. This fund is endorsed by the British Franchise Association and is aimed at people looking to start up a franchise.

To find out more about how NatWest can help with franchising, click here- or call 0800 092 9117.