"The franchisor gave me their financial projections. Isn't that enough for the bank?"
No. And if that's what you're walking into the bank with, you're about to get declined.
After 30 years working with business owners - including many franchise buyers - I can tell you: the franchisees who secure financing aren't the ones with the best franchise brand.
They're the ones with the most credible business plan that shows they understand THEIR specific market and numbers.
Why banks require YOUR business plan (not just the franchisor's):
The Franchise Disclosure Document (FDD) includes system-wide financial performance representations. Average franchisee revenue. Typical operating costs. Corporate benchmarks.
That's helpful. But it's not YOUR business plan.
Banks want to see:
→ Your specific location analysis and market research→ Your startup costs with actual quotes (not franchisor estimates)→ Your revenue projections based on local market conditions→ Your personal financial situation and investment→ Your management experience and capability→ Your realistic cash flow for the first 12-24 months→ How you'll handle slower-than-projected performance
The franchise funding landscape in Canada:
Most franchise purchases require $150K-$500K+ in total investment.
Breakdown typically:
Financing options:
What banks scrutinize in franchise business plans:
1. Your personal financial strength
Net worth, credit score, liquid assets available for down payment.
Bank's question: "If this goes sideways in year one, can this person survive without defaulting?"
2. Your industry and management experience
You're buying a Tim Hortons but you've never worked in food service? Bank wants to see how you'll overcome the learning curve.
You've managed teams and P&L before? That strengthens your case.
3. Location-specific market analysis
Franchisor says "average unit does $800K annually."
Your plan needs to show:→ Trade area demographics for YOUR location→ Competition analysis (how many similar concepts within 5km?)→ Traffic patterns and visibility→ Why THIS location will perform at/above system average
4. Realistic financial projections
Banks have seen thousands of franchise plans. They know the patterns.
Red flags:
Credible projections:
5. Your cash flow management plan
Revenue is one thing. Cash flow is another.
Banks want to see you understand:→ When franchise fees and royalties are paid→ How inventory management affects cash→ Seasonal fluctuations in revenue→ Your personal draw needs vs. business cash requirements
Real example - declined application:
Prospective franchisee applied for $400K loan to open quick-service restaurant franchise.
Their plan:
Why it was declined:
→ No previous food service experience→ Projections exceeded system average in year 1 (unrealistic)→ Didn't account for 3-month ramp-up period (grand opening vs. steady state)→ Personal investment was minimum acceptable (bank wanted to see more skin in game)→ No contingency plan if revenue came in 20% lower
Real example - approved application:
Different franchisee, same franchise brand, similar investment level.
Their plan:
Why it was approved:
→ 10 years restaurant management experience (different brand)→ Conservative year 1 projections with justification→ Detailed ramp-up plan (month-by-month for first 12 months)→ Higher personal investment showed commitment→ Contingency plan if revenue underperformed (reduce personal draw, extend working capital, defer equipment purchases)
What your franchise business plan must include:
Executive Summary:Who you are, which franchise, total investment, financing requested
Personal Background:Experience, skills, why you're qualified to run this franchise
Franchise Overview:Brand strength, system support, training provided, territory rights
Market Analysis:Local demographics, competition, traffic analysis, site selection rationale
Marketing Plan:Grand opening strategy, ongoing local marketing, franchisor marketing support
Operations Plan:Staffing model, training approach, hours of operation, your role vs. manager roles
Financial Projections:
Funding Request:Total needed, proposed use of funds, repayment plan
Supporting Documents:
The role of your accountant in franchise financing:
Before you apply for financing, have an accountant review:
The FDD financial performance:Are the numbers realistic for your market? What's the median vs. average (outliers skew averages)?
Your startup cost estimates:Have you captured everything? Forgotten costs that will derail cash flow?
Your revenue projections:Are they defensible? Conservative enough to be credible?
Your personal financial position:Can you actually afford this? What happens if it takes 18 months to break even instead of 12?
Banks often request a letter from your accountant confirming the projections are reasonable. That letter carries weight.
Common mistakes that kill franchise financing:
Mistake 1: Using only franchisor-provided financials
Banks know these are marketing documents. They want YOUR analysis.
Mistake 2: Overly optimistic projections
"I'll work harder than the average franchisee, so I'll do better than average in year 1."
Banks have heard this thousands of times. They don't believe it.
Mistake 3: Underestimating working capital needs
You budgeted for the franchise fee, equipment, and leasehold. But forgot about the $40K you'll need to cover operating losses in months 1-6.
Mistake 4: No contingency planning
"What if you don't hit your revenue projections?"
"I will hit them."
Wrong answer. Right answer: "I've modeled a scenario at 80% of projections and here's how I'd manage it..."
Mistake 5: Applying with insufficient personal investment
If you're asking the bank to fund 80-90% and you're only putting in 10-20%, you're showing them you're not committed.
Most banks want to see 30-40% personal investment for franchises.
My advice after 30 years:
Don't buy a franchise without a detailed business plan. Not just for the bank - for YOU.
The plan forces you to think through:
I've seen too many franchisees who bought based on the brand and the franchisor's pitch, without doing their own analysis.
Two years later, they're struggling because the local market didn't perform like the system average, and they never planned for that scenario.
The business plan isn't just a financing document. It's your roadmap for the first 2-3 years.
If you're buying a franchise:
The franchise system gives you a proven model. Your business plan shows you understand how to execute that model in YOUR specific situation.
That's what gets you funded.
Question for franchise owners or prospective buyers: Did you create your own detailed business plan, or did you rely mainly on the franchisor's projections when seeking funding
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