How much money do I need in the bank?
The minimum amount of cash you will require in the bank will be around £30,000 / £40,000. The rest, subject to status, can be borrowed from the bank. A full breakdown can be found below
Up front costs
When any business gets started, there are the 'one off upfront costs' that you have to spend before you open the door.
If you were to open from a shop, it would cost you £50,000 to £60,000 (exec VAT which is reclaimable) - made up of your franchise fee of £22,500, shop fitting and furniture of about £25,000 to £30,000, and an additional £5,000 for other incidentals (legals, accountancy, accommodation, deposit on the car and shop etc etc).
However, it must be stressed, these are only an indication of what other franchisees have spent to open a franchise. These figures would need to checked to your own circumstances and verified at a later stage by yourself (it comes down to how much you want to spend).
Ongoing costs once open – Working Capital
Once you have opened your doors of your Lettings office, there will be the monthly expenditure on such things as employees wages/car/ petrol/rent/rates loan repayments etc etc) but the income will slower to come through. The reason is that with lettings, you receive about half your fees up front when you let the property. Then you receive the other half on a drip feed basis each month (because you will receive a percentage of the rent each month when you manage the property). Although the other side of the coin is that once you are up and running, you receive a steady income each month for work you did in the past.
Therefore, when you start, your outgoings/expenditure will exceed your income. The difference between expenditure (monies going out) and your income (monies coming in) would be have to be covered. This would be paid for out of a pot of money called 'working capital'.
How much 'working capital' you will need totally depends on how quick you can get your income up and how tight you run your costs. We have had franchisees break even after 6 months, however, most franchisees breakeven between months 12 and 18. So the amount of working capital will total depend on your personal circumstances eg do you require finance? If so, how much is that a month? Do you require any personal drawings (wages) etc etc. However, to aid you, we estimate most franchisees will require between £50,000 and £75,000 working capital.
So how much is this going to cost me?
You need to add up you 'one off upfront costs' and the 'working capital'. So using the figures from above, most people are looking at a total investment of ....
‘upfront costs’ £50,000 / £60,000' + 'working capital' £50,000/ £75,000 = Total investment £100,000 to £135,000
(but again this figure can be higher or lower depending on your circumstances)
However, the good news is 70% of this total investment amount can be borrowed from the bank (subject to the normal terms and conditions), so you will need the other 30%. As the total investment is around £100,000 to £130,000, you will need 30% of that amount .. which means you are looking at a minimum personal cash investment of £30,000 to £40,000.
You could borrow the rest from the Banks. (Again, we can get someone to talk to you from HSBC, Lloyds TSB or NatWest without obligation - they are really nice people!)
The banks will even allow you to take a living wage out of the business from day one enabling you to pay the mortgage, bills and put food on the table.
Why choose a franchise?
“The public wants to do business with familiar names, and reputable organisations and franchised businesses are both of these,” says Dorian Gonsalves (Belvoir MD). “Most banks have dedicated franchise departments who understand franchising very well, and have developed a well established path for funding, including loans and credit facilities.”
Low risk investment
Banks tend to view franchising as a relatively low-risk investment and in the majority of cases, are very happy to consider financing for Belvoir franchise owners. Most banks will lend up to 50% of the total investment for a franchise (upfront costs and working capital = total investment) So in this case, you need to find 50% in cash and the banks will lend you the other 50%.
However, for some franchises, the banks have a higher tier where they believe the franchise model the franchisee is buying is a lower risk (because the franchisor has proved the model works, the success rate is higher, there is a much lower risk of the business failing so the bank doesn’t get their money back). The criteria to be in this higher tier are very tight, so not many franchise businesses are in it. Belvoir have consistently been in this tier and so new franchisees, subject to status, can borrow up to 70% of the total investment (but arrangements can be tailored to meet individual requirements).
Also, there is a double whammy of being in the top tier, in that the rate the banks charge should also be much lower. Speak to Christopher Watkin on 01476 570000 at Belvoir for an indication of what the banks are loaning money at – you might be very pleasantly surprised. (SMALL PRINT .. it would only be an indication of the typical rate would be – the exact rate would agreed directly between you and the bank and dependent on your circumstances and subject to status. A decision over financing can often be received within 72 hours, and funds released in six to ten weeks.
100% funding with no cash down
The minimum investment (cash in bank) starts from around £30,000 to £40,000 with the remaining amount being funded by bank lending at around 3% to 5% over base rate (subject to status).
However, in some exceptional circumstances, as Belvoir is in the highest grade of franchise business models, if there is sufficient equity in your property, one High Street bank could lend up to 100% of the business venture, with no cash investment requirement from the franchisee. (again subject to status). Contact Christopher or Sarah for details)
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