Franchising Today - Fall 2016 - 17

FUNDING

FRANCHISE FUNDING
the first thing to do when funding a franchise is to get a clear view of your
personal financial situation and draft a strategic business plan.

IT'S
NOT
HARD
TO
WHY
It's not hard
to see why
more
envision SEE
your first five
years of operaand more people are finding the path
to entrepreneurship through franchising. Whether you are setting up
your first franchise or using your
success to add another location, you
are going to be spending a lot of time
on funding decisions. There are right
ways to make those decisions and
wrong ways to avoid.
The first thing that should be on
your to-do list is to get a clear view of
your personal financial situation. A
well-run franchisor is going to make
sure you are adequately capitalized
for success with its brand.
To come up with your answers, start
at the U.S. Small Business Administration's (SBA) website. Here you will
find a personal financial statement
template for its 7(a) and 504 loan programs, which many franchisees use. It
should help you see how much you're
able to invest and what your capacity
for taking on more debt might be.
Then see what the financial criteria
are for each franchise you are considering. As you read the franchisor's
financial disclosure statements, be
sure to look for not only the initial
costs, but also the investments that
might be required later on. Many franchisees have found themselves having to borrow to make unanticipated
mandated investments in their units.
Next, draft a strategic business
plan. A good franchisor will offer
plenty of guidance on developing your
unit, but that doesn't replace writing
your own plan, which should help you

tion. If you already have a plan, reread
it regularly and revise it as necessary.
You might not have considered expansion or changes in demand.
Factor these changes into your financial projections for the next five
years. Again, the SBA's website has
some excellent guidance. It also has
local offices that can provide you with
free business counseling and training.
Taken together, your business plan
and financial statement will indicate
how much funding you will need to
reach your franchise dream. With the
recession over, more funding sources
are available than ever before.
There's everything from shortterm options that can help with your
build-out to longer-term money that
can fuel your expansion, and they
are provided not only by traditional
banks and credit unions, but also by
alternative finance companies that
have set up quick-to-use applications
on the Internet. Increasingly, the two
avenues are blending together, with
online finance companies now able
to offer loans guaranteed by the SBA,
just like a traditional bank.
A word of caution is required on
one potential funding source for franchisees: your 401(k). You can use retirement savings to fund a business, a
process dubbed "rollovers as business
start-ups" and often abbreviated as
ROBS. Many people have built large
sums in their retirement accounts,
and looking at them to fund a second
career is understandable. But creating

a ROBS is a complex transaction best
done by a professional adviser.
They can help you set up your business as a C corporation and create the
corporate retirement account that
will be the recipient of your personal
retirement account funds. If you are
not yet 59-1/2 and you transfer the
money incorrectly, you could end up
paying taxes on the money you withdraw, as well as a withdrawal penalty.
Although you may believe in the success of your franchise plans, if they do
not pan out, you must be sure you still
have enough in your account to retire
comfortably. Setting up a ROBS could
cost at least $5,000, and you'll need to
file an annual report with the IRS.
Your retirement funds can, perhaps, be a help in other ways. If your
retirement account is a Roth IRA,
you can withdraw any money that
has been in the account for at least
five years without paying taxes or
penalties. While you can't use your
401(k) as collateral for a loan (the IRS
considers that a distribution and you
could face a penalty), you can take a
loan from a 401(k) if you are still employed at the company that offered
you the account. You will have to pay
it back before retiring or leaving the
company, so make sure this is in your
business plan.
Stephen Sheinbaum is the founder

of Bizfi, an aggregation marketplace that
offers many kinds of alternative funding.
Since 2005, Bizfi has originated more than
$1.8 billion in funding to more than 32,000 small businesses. For more information, e-mail Bizfi Marketing at
marketing@bizfi.com or call 212-545-3182.
FALL 2016

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17


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Table of Contents for the Digital Edition of Franchising Today - Fall 2016

Contents
Franchising Today - Fall 2016 - Cover1
Franchising Today - Fall 2016 - Cover2
Franchising Today - Fall 2016 - 1
Franchising Today - Fall 2016 - Contents
Franchising Today - Fall 2016 - 3
Franchising Today - Fall 2016 - 4
Franchising Today - Fall 2016 - 5
Franchising Today - Fall 2016 - 6
Franchising Today - Fall 2016 - 7
Franchising Today - Fall 2016 - 8
Franchising Today - Fall 2016 - 9
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Franchising Today - Fall 2016 - 14
Franchising Today - Fall 2016 - 15
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Franchising Today - Fall 2016 - 17
Franchising Today - Fall 2016 - 18
Franchising Today - Fall 2016 - 19
Franchising Today - Fall 2016 - 20
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Franchising Today - Fall 2016 - 38
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Franchising Today - Fall 2016 - 49
Franchising Today - Fall 2016 - 50
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Franchising Today - Fall 2016 - Cover3
Franchising Today - Fall 2016 - Cover4
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