Franchise New Zealand | Spring 2025 | Year 34 Issue 03
28
Buying a franchise can be one of the most rewarding ways to enter business
ownership. With a proven model, brand recognition, and support from the
franchisor, franchise businesses offer a level of security and structure that
independent startups often lack. But while the franchise model reduces some
risks, funding the business still requires careful planning, smart questions,
and professional advice.
In our Autumn issue published earlier this year, Westpac’s national franchising
manager Daniel Coete suggested some useful questions to ask about
a business in order to become an educated franchise buyer (see www.
franchise.co.nz/articles/3936). Now, Daniel focuses on how to turn your
dreams into reality by looking in more detail at the right questions you should
ask about funding that business.
As a business banker working with franchise buyers, I’ve seen firsthand
how asking the right questions can make the difference between a thriving
business and a financial struggle. Here’s what you need to know – and ask –
before committing your money to a franchise.
Start with the right mindset
Before diving into numbers, it’s important to shift your mindset. The first
question is not, “How much can I borrow?” but rather, “How much can
the business afford while delivering a decent living and return on my
investment?”
This question sets the tone for responsible borrowing. Overextending yourself
financially can lead to stress, underperformance, and missed goals. Instead,
aim for a funding structure that supports both the business and your lifestyle.
Understand the total investment
Franchise advertisements often list a wide range of capital requirements –
say, $90,000 to $250,000 – but what does that include? Ask:
• Does the figure include the franchise fee?
• Is the fit-out of a new outlet covered?
• Are rental bonds, stock, equipment, legal and accounting fees included?
• Is this the total investment or just the cash equity required?
Understanding the full cost helps you avoid surprises and ensures you’re
budgeting accurately. Work with a franchise-savvy accountant to break down
these costs and build realistic cash flow projections.
Don’t overlook working capital
Working capital is the lifeblood of your business. It’s the cash needed to cover
day-to-day expenses like wages, utilities, and inventory before the business
starts generating income. Ask:
• How much working capital will I need to operate effectively?
• How long will it take before the business becomes cash-flow positive?
• What contingencies are in place if revenue takes longer to ramp up?
Many franchise buyers underestimate this need, leading to early cash
crunches. Your accountant can help you model different scenarios to ensure
you’re prepared.
Explore cash flow lending
If you’re buying into a well-established franchise system with a strong brand
and proven performance, you may be eligible for cash flow lending. This type
of funding allows you to borrow against the future earnings of the business,
potentially reducing your upfront equity requirement. Ask:
• Is cash flow lending available for this franchise system?
• What are the criteria for qualifying?
• How does this affect my debt servicing obligations?
Cash flow lending can be a powerful tool, but it must be matched with
realistic projections and a solid understanding of the business’s
earning potential.
Match funding to assets
Not all funding is created equal. Short-term loans may be suitable for working
capital, but not for long-term assets like fit-outs or equipment. Ask:
• What is the appropriate term for each type of funding?
• When will major assets need to be replaced or upgraded?
• Will I need additional funding for future refurbishments?
Aligning loan terms with asset lifespans helps maintain healthy cash flow and
avoids refinancing headaches down the road.
Choose the right funding partner
Your bank should be more than just a lender – it should be a strategic partner.
Many banks have specialist franchise divisions that understand the nuances
of franchise systems and can offer tailored solutions. Ask:
• Does my bank have a franchise specialist team?
• Are they familiar with the franchise system I’m buying into?
• Can they offer benchmarking data and strategic insights?
If your bank isn’t familiar with the franchise, they’ll require more detailed
information from the franchisor. A knowledgeable banker can streamline the
process and offer better terms.
Think beyond the loan
While initial lending is important, don’t forget about your ongoing banking
needs. These services directly impact your bottom line and operational
efficiency. Ask:
• What transactional services are available (e.g., EFTPOS, credit card
facilities, online banking)?
• Are there overdraft options or flexible account structures?
• Can the bank support my growth plans with scalable solutions?
A good banking setup supports your business day-to-day and grows with you
over time.
Westpac’s Daniel Cloete suggests the right
questions to ask about funding a franchise
business
A QUESTION OF
Buying a Franchise
FUNDING