Your Business

5 Ways a Line of Credit Can Help Grow Your Franchise

By Fundbox Team

Owning a franchise of a large national chain offers the best of both worlds. You get a successful business model with name recognition and the freedom to run it much as your own. The flip side is that it comes with many expenses unique to franchises, including some fixed fees. Whether you want to add a new franchise location or expand or support your existing one, a business line of credit from Fundbox can help with many of these common expenditures and potential cash flow issues. Here are a few examples.

1. Financing Franchise Fees

When you open a franchise, even to add a new branch, there are many start-up costs that come with the territory. Unlike royalties, you may be responsible for these payments regardless of how much revenue you take in. These costs vary by business, industry, and state but should be detailed in your franchise disclosure document (FDD) or other contract. Such fees typically include: 

  • Franchise and licensing fees can be between $20,000 and $50,000 to start, and some require annual renewals.
  • Travel fees for airfare and living expenses may be needed periodically for training your team at franchise headquarters or for annual meetings.
  • Co-marketing fees may be required on a monthly or yearly basis to support your franchisor’s expenses for national advertising services they provide, like television and magazine ads.
  • Inventory and supplies may be required by your franchise contract to be stocked at minimum levels. Some items, from uniforms to napkins, may even require branding, so you can’t just run out and pick them up at the big box store.
  • Facility costs can add up even after your initial build-out, including landscaping, signage, and monthly security premiums, some of which may be required by your franchise agreement.
  • Legal and accounting fees can include consultations or retainers, usually ranging between $1,500 and $5,000 per contract and may be necessary for financial tracking demanded by your franchisor.

“Once I was able to use Fundbox to invest in inventory, I was able to take on new jobs. That helped me grow about 15%.”
Scott Bullock, Mr Appliance franchisee in Southern Utah

Sample Breakdown of Approximate Costs in a Typical Franchise InvestmentFranchise start-up cost chart

Source: Franchise Direct example from Relax the Back franchise (average amounts based upon estimated figures provided in the franchisor’s franchise disclosure document).

2. Saying yes to more new business

One of the key risks of growing a business—especially in materials and labor-intensive industries like construction and maintenance—is fronting the costs required to take on new jobs. After you secure supplies and hire the help, you have to wait until the job is done to bill the client, and wait another 30 days (or more) for them to pay.

Late payments are a common problem for businesses like yours. According to Fundbox research, 64% of SMBs get paid late, and as a result, 23% can’t invest in new equipment or hire new employees, and 17% can’t build up inventory.

“When we are not paid on time or slowly, we cannot obtain big customers because big customer accounts require more capital to service.”
Jose Ramirez, owner, Supreme Maintenance Solutions

 

One  alternative to growth is turning away potential business that could very well go to your competitors. By smoothing out the bumps caused by monthly income variations, or by injecting a needed boost in capital, a line of credit can help you ramp up for new business, including:

  • Bringing on new people, by hiring the internal talent or short-term contract labor
  • Paying for materials in bulk so they’re on-hand to start projects, and some suppliers require cash for bulk purchases
  • Maintaining uninterrupted supplies during spikes in business 
  • Investing in faster equipment, upgrading computers, software, or even cutting-edge tools like laser die-making machines, digital presses, or 3D printers

3. Stocking up for your seasons

If your business is affected by cyclical demand, such as in construction, HVAC, or tourism-related maintenance, a line of credit can do much more than tide you over during leaner months. It can prepare for the next big season and meet future customer demand by investing in supplies, equipment, or inventory in advance. Tapping into your line of credit lets you:

  • Save money by resupplying or buying off-season, when prices are lowest.
  • Reduce downtime by performing deferred or preventive maintenance on your vehicles or machinery.
  • Add new capabilities through modernized equipment, new software, or new skills.
  • Improve relationships with suppliers and key partners by making larger deals.
  • Diversify your offerings by adding alternate services for all seasons.

4. Expanding your current location

Many business owners might first consider traditional construction loans for building, repairing, or expanding their commercial structure. However, such loans usually require additional costs and red tape, including a down payment, appraisal fees, excellent personal credit, financial documentation, and more. A business line of credit may be faster and much easier to secure and help cover short-term costs like:

  • Remodeling or repairing your existing facility
  • Growing your existing square footage
  • Branching out with a satellite office
  • Updating your company branding, signage, and decor
  • Complying with mandated fire codes, ADA standards, zoning, or other laws

“Our partnership with Fundbox has allowed us to start and grow this division. It went from an idea two years ago, to pushing hundreds of thousands of dollars in revenue in these first four years. I’m really pleased.”
Alan Fagan, founder and CEO, the Mattox Group

5. Improving your marketing

Marketing is essential for growing your business. A survey by US Bank reported that 64% of failed businesses cited “Minimizing the importance of promoting the business properly” as a reason they shuttered.4 That’s why you should consider resisting the temptation to slash your marketing budget, even if times get tough. A business line of credit can support marketing in many ways:

  • Website development and updates, especially for mobile
  • Trade show attendance for promoting, learning, and making deals
  • Email automation for triggered or drip marketing 
  • Search engine marketing (like local Google Ads or targeted remarketing)
  • Radio or TV advertising, including targeted local broadcast or cable
  • Direct mail or outdoor advertising, from postcards to billboards 
  • Promotional giveaways, like pens, refrigerator magnets or other items

“Sometimes you miss out on opportunities just because you don’t have the funds. With [a business line of credit], we’re able to invest in marketing to help us grow.
Steve Wiideman, owner, Wiideman Consulting Group

See if Fundbox fits your franchise needs

Visit fundbox.com to learn more and to see if you qualify. Applying doesn’t affect your credit score. You can expect a credit decision in minutes and access to funds as soon as the next business day, if approved—so you don’t have to wait to start growing your franchise.*

* Decision time based on the median decision time for Fundbox customers.

 

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