How to Finance and Keep Costs Low for a Franchise

Money smarts are crucial to owning any kind of business. But if you're about to be a franchise owner, carefully consider how you plan on paying for everything, and as you are paying out, how you might be able to reduce your costs.

Lower Cost Franchises
Let's get one thing straight. If you're looking to cut costs. The first place you should look is your initial investment and how much you are going to have to plop down just to buy your franchise. Franchise prices vary by franchise. If you are looking for something with fewer startup costs, look for a low-cost franchise. There are many smaller, franchise opportunities that obviously have lowers costs to start than others. You just have to do your homework and decide if it's right for you, and if you believe in the product.

Fee Negotiations
While most franchise companies do not offer you the option of being able to negotiate the fees you will pay to them, some do. And if you are afforded that option, it behooves you to negotiate prices that work in your favor as much as possible. If possible, snoop around and see what sorts of savings other franchisees have received in their negotiation process to see how much you might be able to get away with.

Franchise Financing
In some cases, your franchisor may be able to help you or, or they will at least help you find a bank or lender. Oftentimes, they'll at least give you a list of lenders to work off of that the company has an established relationship with.

If you find yourself at a lender, make sure you have a business plan and a good credit score. Lending standards have tightened with the tightening of the credit markets. In fact, you may find it extremely difficult to get a loan. So, anticipate the worst and prepare to make yourself look good in front of the lender to increase the potential of you being able to pull a loan.

Although, a lot of lending is not happening right now, many lenders often look at franchisees as slightly less risky than a stand-alone startup business because you have the backing of your established company behind you.

Small Business Administration
Not only can you find money tips and articles via the SBA, but the SBA also offers loan rates worth looking into. One of their more popular loan programs is for loans under $100,000, called the guaranteed loan program. Additionally, the SBA offers a loan program especially for military veterans.

Cash
Cash is important. Cash is important if you don't want to take out a lot of loans, and cash is important if you want to get a loan. Essentially, make sure you've got cash. You'll look good to a lender and you'll also be more financially sound than someone who doesn't have cash.

Angels-
-Investors, that is. In some cases, franchisees may be able to work out a deal with an angel investor. Of course, this would be one of the more unconventional ways of finding funding for your business, but if it works, it works. You might also try family members and friends, but then that gets into a touchy territory that you may not want to travel to.

Packages and Franchisor Financing
Many times, you can do direct financing with your franchisor. In some cases, this may give you piece of mind that you are doing it directly through the company. But, like any loan deal, make sure you're reading up on it and that you are getting the best, competitive rate for yourself.

Sometimes, you may have the option of buying a comprehensive package or kit in which everything you would need to start the business is in that kit. You pay one fee and it's all there for you either directly from the franchisor or from an outside party. Oftentimes, if you do the breakdown on the package contents, you will find that in some cases it is easier for you to just negotiate on your own through individual companies. The advantage, however, of forking over more money, is that it saves you time and could make the startup process slightly more efficient. You have to weigh the cost versus savings on that one. But, generally speaking, if you're trying to reduce your costs, these packages may not always be the best option.

Leases
Get a broker. No joke. Make sure you have someone on your side to negotiate with a landlord the best possible deal for you. Most people think signing a lease is just signing onto whatever rent terms there are, but oftentimes there's so much more. If your business is a retail or restaurant business, chances are you are not located in an isolated retail pad. You're going to be located in a shopping center. This means you will have maintenance costs for common areas. These would be areas open to the shoppers, such as seating by a water fountain. The landlord is going to want to the tenants to chip into the cost of maintenance for that area.

Likewise, if you have a broker on your side, he or she can negotiate free rent or tenant improvements and other concessions (especially now considering it's a tenant's market and landlords are doing anything they can to get leases signed).

A good broker or real estate attorney will come with a fee, but you have to weigh that with the potential savings. If you don't know what you are doing you can get steamrolled by a landlord's broker, who, obviously, is out for the landlord's best interests.

Construction
If you've signed a lease, then you will no doubt want to make construction improvements. If you move into a place that doesn't need any such improvements, consider yourself lucky.

Always make sure to get multiple bids and don't settle for the first contractor you meet. Contractors, like landlords, right now want business and you may be able to get a good deal on construction costs. However, if you're starting a business in an up economy, you may not always get the lowest cost. Therefore, always get multiple bids.

Additionally, once you've decided on a contractor, always have a contract and never pay the full amount upfront. And if you're really trying to scrimp and save, evaluate what you can do (such as painting or cleaning) that will reduce your costs.