Prospects for franchise lending in 2012
Cathryn Hayes - HSBC Head of Franchising
There can be no denying that 2011 has been a challenging year. However, HSBC lent at record levels to franchised businesses in 2011, and we are continuing to actively support the sector with the aim to further grow our lending book in 2012.
Banks are more likely to support a business with a well-researched and structured business plan, particularly those that demonstrate a strong understanding of their finances. Franchising has a number of advantages here. Although not recession-proof, the wide spectrum of sectors covered by franchising means that the UK franchise industry is likely to fare better in these difficult times. The failure rate for franchises is much lower than for standalone start ups. This is predominantly due to the support of the franchisor and other franchisees in the network, who can help new franchisees avoid the pitfalls associated with starting up a business.
So, how can franchisors help to support their franchise owners both new and existing? Monitoring and control is even more important than ever – knowing what is happening in your network has never been more important.
Planning is vital – even though none of us know what is round the corner, a robust business plan can help to keep a business on track and ensure that franchisees know which areas to focus on to keep their businesses healthy.
Try to ensure that your franchisees are working well with their bank. These are the problem areas – things which can lead to a breakdown in the relationship:
- not supplying agreed information on time
- failing to make loan repayments
- repeatedly exceeding overdraft limits
- unexpected or persistent trading at a loss
- not using facilities for the agreed purpose (such as personal expenditure)
Look at your own requirements as a franchisor too. We deal with a wide range of franchisors, from fairly small businesses setting out on the franchise route, to major corporates. Regardless of size, it is important to:
- Have a clear view of where the business is going – what are your aims for expansion? How much are you going to need to spend to achieve that?
- Keep good financial records and forecasts. In this way you can apply for new finance before you need it urgently. Banks will look more favourably on such requests as it shows you are in control and can plan.
- Understand how financial ratios work. They are good indicators of a business’ health and these are what banks use to assess your financial health and that of your franchisees.
Consider alternative methods of funding working capital, like invoice finance, which involves raising finance using your debtor book. The advantage of this is that cashflow is directly linked to business expansion. This method is not suitable for all businesses – your bank will be able to advise you.
Another funding method to consider is asset finance to fund the purchase of equipment for the business. This can help ease cash flow by spreading repayments over a period of time instead of making a one-off investment.
It is worth investing time to develop a strong relationship with your bank, making sure they understand your business model and can work with you to develop financial packages tailored to your individual needs and those of your franchisees.
To conclude, HSBC is definitely open for franchise business and finance will be available to quality applicants who can demonstrate they have a good understanding of their chosen franchise model and the financials of their business. We look forward to working with you and your franchisees in 2012!
Posting from the monthly HSBC Connections newsletter. For more information or to get on the mailing list for the newsletter please email franchiseunit@hsbc.com
HSBC View: How the UK franchising sector has fared during 2011
Cathryn Hayes - HSBC Head of Franchising
There is no denying that 2011 has been a difficult year for UK businesses. The economic recession forced sweeping changes in strategy for many businesses – add to this the change in Government at last year’s general election, increased unemployment and reported lack of available credit and it’s not surprising many firms have struggled.
However, with significantly better success rates than other businesses, the franchise industry is key to promoting job creation, stimulating economic growth and encouraging new start-ups. This is mainly due to the wide spectrum of industries covered by franchised businesses, the strength of the business model and the support provided by franchisors and other franchisees within the same networks.
Nowhere is this success more evident than this year’s bfa HSBC Franchisee of the Year Awards. Financial stability, innovation, creativity and the relentless pursuit of success were just a few traits demonstrated by this year’s finalists.
The overall winners, Mike and Catharine Chalton from Home Instead Senior Care in Wirral, showed that their key success was providing excellent customer service which has resulted in their business going from strength to strength. They are a true credit to the franchising industry, and an inspiration to small businesses across the UK.
So what about finance? Put simply, there is still plenty of funding available for sound business propositions. Your franchisees are in a stronger position than a standalone start-up business because of the help and support available to them. Requests for funding are more likely to be agreed if franchisees present a professional and credible business plan.
This could be the time to think about switching your business. There is often a nervousness that surrounds ‘switching your bank’, for fear of disrupting vital transactions. The UK’s leading banks, including HSBC, have signed up to a banking industry code that means they must make account switching speedier and easier for customers who have made their mind up their mind to change.
We have consistently welcomed new franchise business, and we are confident that by the time 2011′s Christmas trees have been packed away HSBC Franchise Unit will have improved on our 2010 lending figures by 200%.
Posting from the monthly HSBC Connections newsletter. For more information or to get on the mailing list for the newsletter please email franchiseunit@hsbc.com
Tags: cathryn hayes, franchise industry, franchising, hsbc, uk economy
HSBC Growth Grants could benefit Franchisors
Are you are a franchisor with an annual turnover of between £100,000 and £2m with ambitions for growth?
HSBC are currently offering the opportunity for businesses to win one of four HSBC business growth grants that are on offer to entrepreneurs seeking to expand their businesses.
Two grants will be awarded to businesses using innovative ideas to grow their businesses within the UK and two further grants will be awardded to businesses that have the aspiration to develop their opportunities overseas.
For fill details and an application please visit: http://www.businessgrant.hsbc.co.uk/. Closing date for applications is 31st December 2011.
Tags: Franchise Finance, franchise funding, hsbc
