Franchising
Financing a second franchise location without stretching the first
Financing a second franchise location starts with the first business's cash needs. Check the opening budget, repayments and management capacity before expanding.
Financing a second franchise location means showing how the new site and your existing business will cope together. Prepare the opening budget, your current trading figures and a forecast for both sites. Allow for the months before the new site brings in cash. Check you have the people and permissions to run it.
A second site can be the natural next step. It also asks more of the first one than many owners expect.
Section 01
Is your first franchise ready to support a second?
Start with the business you already run. A second site will draw on its cash and on your time.
- Results: Is the first site trading steadily, or did last year include one-off wins?
- Cash: After paying its own bills and debts, how much cash does it leave each month?
- Your time: Could the first site run well for a few months with less of your attention?
- People: Who will manage each site from day to day?
Profit and spare cash are not the same thing. A profitable site may still have loan repayments, tax and stock to pay for. Only the cash left after those can help fund the second.
These are planning questions, not fixed tests. Each lender sets its own criteria.
Will a lender look at your existing franchise's figures? Usually, yes. How your current site trades is often the best evidence of how you would run another.
Section 02
What does financing a second franchise location need to cover?
Add up four kinds of cost.
Opening investment
Fit-out, equipment, any fee for the new territory and the first stock.
Running costs before it pays its way
Wages, rent and royalties for the new site while its sales build.
Your existing commitments
Repayments and other obligations at the first site. These do not pause while you expand.
Extra shared costs
A manager, more admin, a second van or extra insurance that the business as a whole will carry.
Opening a new unit is different from buying one that already trades. A resale comes with its own accounts and a price to negotiate. A new site has neither, so your forecast carries more weight.
Do you need the franchisor's permission for another territory? Ask early. Check whether your agreement gives you any right to more territory, and what the franchisor needs from you before it grants one.
Section 03
Can both locations cope with a slower opening?
Build a forecast for each site, then a combined view. The combined view is the one that matters, because the cash comes from the same place.
Here is a made-up example of one month while the new site is opening. It compares a base case with a slower start.
- First site: £8,000 of cash left after its own costs and commitments, in both cases.
- Second site: £6,000 more going out than coming in for the base case, and £9,000 if sales start slowly.
- Extra shared costs: £1,500 in both cases.
- New repayment: £2,000 a month, assumed in both cases.
- Combined result: £1,500 more going out than coming in for the base case. In the slower case the gap is £4,500.
These figures are invented for teaching. They are not a quote, a benchmark or a test you must pass. The repayment is an assumption, not a loan calculation.
This monthly view leaves out the upfront investment, which needs funding of its own. What it shows is how long you could carry a shortfall. With £20,000 in reserve, the base case lasts about 13 months. The slower case lasts about four.
Can you use the first business's cash to fund the second? Often, but check first. If the sites sit in different companies, moving money between them can have tax and legal effects. Existing loan agreements may also restrict it.
Do not assume that security already given for one loan will stretch to cover another. Ask your accountant and solicitor how the sites should be owned and funded.
Section 04
Prepare the expansion application
Expansion is often funded with a term loan for the opening costs. Asset finance can sometimes cover equipment or a vehicle. Working capital support can help with the early months. The right mix depends on the business, the figures and the lender.
Gather these before you apply.
- Current accounts and recent management figures for the first site.
- The new site's plan, costs and forecast.
- The combined forecast for both sites.
- Details of your existing borrowing and what it is secured on.
- The franchisor's agreement or terms for the new territory.
- Who will manage each site, and how.
Is financing a second location the same as buying a multi-unit business? No. Buying several trading units at once is an acquisition, judged on those units' own results. Adding one new site is about whether your existing business can carry it.
When the numbers still hold up in the slower case, talk to us about funding for another franchise location. Tell us how your existing franchise is trading and what the next site will cost. We can help you explore the funding routes and the information a lender will need.
This guide is general information, not financial advice. Applications are subject to status, affordability and lender criteria.
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Starting your first franchise, buying an established franchise or adding another location? If you’ve read the guide, our advisors can help you understand the funding options and prepare your next step.