By Warren Sare, BNZ

EXPECTATIONS

It’s a two way street. So what should you expect from your bank, and what will they want to see in return?

When entering into a business, one of the most important relationships to form will likely be with your bank.  Having clear expectations and developing a strong relationship right from the start is one of the best moves you can make.  The following article looks at what you as a franchisee can expect of your bank and conversely what is not unreasonable for a bank to expect of you. 

What’s fair to expect from your potential bank?

“Why should I choose you over your competitors?”

This is a common question that is often asked of lenders by potential clients and one that requires some explanation.  People entering the business world do so for different reasons.  So while this line of questioning is more often than not price driven, emphasis should be placed on the total relationship, not just the immediate and often minimal initial saving.  Buying a business is a serious commitment.  Decisions need to be based on both present and future needs.

Ideally your relationship with your bank should be similar to the franchisee/franchisor relationship; a partnership offering mutual bene?t to all parties.  Your banker should become your trusted financial advisor, someone with whom you feel comfortable discussing all aspects of your business.

When speaking with your bank, you should feel that you are being given honest advice that is relevant to the local business environment.

What is often overlooked is the importance of specialised franchise banking within business banking.  A franchise business has a number of additional components such as brand, systems, training and support.  These aspects make it a proposition that requires an understanding of the business model and the market.  While taking out a simple, constantly reducing property backed loan can be viewed as ‘set and forget’, with little more than a decision to fixx or float every few years – in reality, your franchise business will inevitably change over time and perhaps even season to season.  You need a banking partner that can meet changing needs of your business.

Your business banker should display:

• A passion for customer service and genuine interest in your business and industry - with business connections that will bene?t your business.
• A desire to understand your goals and objectives, not only for your business but for you personally as well.
• A thorough understanding of the industry and an ability to talk the same language as other industry participants.
• Broad business acumen and a comprehensive grasp of ?nance concepts and banking expertise.
• Accessibility, including multiple points of contact, within their team.
• A proactive approach to better banking solutions for your business.
• A demonstrated understanding of the key drivers of your business.
• Specialist advice as well as the best ?nancial products.
• Access to specialists in ?elds such as merchant, insurance, asset and debtor ?nance.
• The ability to recommend other ?nancial partners such as an accountant and solicitor.

How do you know that you’ve chosen the right bank?

Hopefully you have chosen a bank that specialises in the franchising sector.  You need a bank with franchising knowledge who will understand the current climate and the dynamics that will affect your franchise, as well as sector-specific business acumen to make the process smoother.

There could be other start-up bonuses to dealing with franchise specialists too.  For example, some banks can fund accredited franchise systems for up to 65 per cent of the business purchase cost of a well-established system, without franchisees having to necessarily borrow against personal assets (subject to credit approval).  There may be other bene?ts available to your chosen brand, which you should enquire about.

Your banker should be able to help you work through and understand all the direct and indirect costs of financing your franchise, using a balance of your own equity and any bank funding.  Whilst finance may be an essential ingredient to making your dream come true, ask your banker about other essential business services.  These include merchant facilities, internet and telephone banking, business insurance and financial planning advice as well.  You want your banker to work closely with you to give you ?nancial, business and personal wealth advice, not just assistance with loans.

The bank you’ve chosen should offer you a product suite that will meet both the short and long-term needs of your business, as well as meeting any plant or machinery needs you might have and can also deliver you other add-on benefits such as ongoing business education programs.

You should feel like you and your bank are partners, with each playing a vital part in your business success.

What’s reasonable for your potential bank to expect of you?

By now you’ve done the leg work, read all the industry magazines, trawled the internet and worked out what you’re good at and where your passion lies.  No doubt you may have visited a trade show or two, met with a few franchisors or business brokers and made the decision that the franchise business world is the right direction for you.

The next step is to complete your due diligence and look to ?nalise your purchase.  This is the point where looking to a bank for funding becomes a reality.  For many people, looking for finance can be a daunting task, especially if they’re not accustomed to it.

Expect your banker to ask you questions

You want your banker to work closely with you to give you ?nancial, business and personal wealth advice - not just assistance with loans.  Be prepared with as much information as possible to answer your banker’s questions.  The more expensive the business, the more in-depth the level of information required should be.

The most effective business bankers will want to develop long-term relationships with their clients and have the ability to ask them the right questions to make them think about the way they operate their business.  They will take the time to understand client needs and aspirations, and then apply their knowledge and understanding of business to develop the right solutions for them.

Your bank should ask you for a loan application form.  The information required will vary from lender to lender, but will generally cover basic personal and business information including:

• A statement of position - in simple terms this is what you own and what you owe.  This is required to gain an understanding of your financial position.  A prudent lender does not want clients over committed.  They will want to understand what you are prepared to put on the line and what personal ?nancial strength is being brought to the table.
• Personal information - this allows a full credit check to be done with your permission and will incorporate you providing copies of photographic identification.  If you are new to a bank, there may be additional requirements such as current bank statements.
• Business information - including your company name, physical address, incorporation number, director’s and shareholder’s structure and IRD number. This will also allow a check of any security interests that may be registered against your company.
• Financial accounts - in the case of purchasing an existing business, there is an expectation of seeing the past two year’s accounts, along with a cash flow projection suited to your own personal position.  This is where franchise business information can often differ as some sites are frequently new.  It is recommended that an independent party be involved in the preparation of cash flows, preferably an experienced accountant.    In either situation, it is important that you understand the projections and can explain them.  If you as a borrower can’t understand the what, how and why of your business, then expect your banker to take a closer look at your suitability as a candidate for borrowing.
• A brief business plan - explaining what the business is, how you intend to fund it, who will work in the business and what your expectations of return will be.  While specialist franchise lenders will often have a good understanding of a number of systems, you should understand and be able to communicate your own business proposition.
• A copy of your franchise agreement -sometimes done at settlement, dependent on the origination and complexity of the document.
• A copy of your lease - if applicable.

Remember that you are looking to make a long-term commitment, so all the factors need to be right to ensure you have the best possible chance of success.

Warren Sare is National Partner, BNZ Franchise Banking.  He is responsible for BNZ’s team of franchise bankers and for the ongoing accreditation of franchise systems across New Zealand as well as managing key professional relationships.

This article is intended as a general discussion only. The views expressed are his own and do not necessarily represent those of BNZ or its related entities.

For more information please contact: Warren Sare Phone: 09 976 6326 Mobile: 029 222 0430 Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it Web: www.bnz.co.nz