HOW TO FRANCHISE?

This is the section closest to the bank’s heart. It sets out in detail every aspect of your proposed business that involves money – from what you will be putting in to what you will be getting out and the links that connect the two together. The financial information you provide forms the basis on which the bank will make its lending decision, so the more clear, detailed and logical the facts and figures, the happier the manager will be.
The two key components of this financial presentation are the projected profit and loss account and the cash-flow forecast.

Start with a summary containing the following:

• The forecast profit or loss for the first year.
• The break-even point – the point at which your sales cover your overheads. Add up all your fixed costs and you will see how much sales revenue you will need to break even. Get past that point and wow, you’re in profit and on your way to making the business hum.
• While you are building sales the costs will still need to be covered, so explain how they will be funded – how much of your own money you are putting in and how much you will need from the bank.
• Even the most unforgiving bank manager will concede that in order to build your business you will need to sustain yourself with creature comforts such as food, clothing and shelter, so give details of the money you will need to take out of the business to provide for yourself and your family.
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Profit and loss forecast
This is a statement of your predicted sales minus your direct costs (costs incurred in making the sales) and overheads (wages, rent, rates, etc). For purposes of illustration, here is a simple example:

Forecast sales £20,000
Cost of sales (materials needed to
carry out the forecast work) £5,000
Gross profit £15,000
Overheads £2,000
Net profit £13,000
Drawings (the amount drawn out for
personal living expenses) £10,000
Retained profit £3,000
Cash-flow forecast
Cash is the lifeblood of a business. You may have an impressive profit forecast but if you don’t get paid, or get paid too late to pay staff and suppliers, you are in real trouble. Sadly, it is not uncommon for a small business to have to pay for materials in advance and then to be kept waiting for months for payment from customers to whom you have sold goods or services. This lag between making payments and receiving them can spell trouble for businesses that would otherwise be trading profitably. In this cruel world, where size means strength, when it comes to paying up on time the biggest firms are usually the worst offenders.
Fortunately, most franchised businesses sell either to the public or to other small businesses and therefore seldom find themselves at the mercy of large firms. Better still, many franchises get cash on delivery, thus ensuring a healthy cash flow.

Even so, cash-flow forecasting helps you to predict peaks and troughs in your cash balance; to plan borrowing; to predict how much surplus cash you’re likely to have at a given time; and to make the most efficient use of your resources. Having an accurate cash-flow forecast will help ensure that you can achieve steady growth without overtrading. You will know when you have sufficient assets to take on additional business and, just as importantly, when you need to rein back.

A cash-flow forecast is a record of when you expect to get money into your business and when you expect to pay it out. The aim is to show the bank when your need for cash is likely to be at its greatest and to plan your funding accordingly. The forecast is usually done for a year or quarter in advance and divided into weeks or months. It is best to pick periods during which most of your fixed costs – such as salaries – go out. The forecast lists:

• receipts – cash from sales, cash from debtors;
• payments – payments to suppliers, cash purchases, rent, heating,
• lighting, etc;
• excess of receipts over payments – with negative figures shown in
• brackets;
• opening bank balance;
• closing bank balance.