How to finance your future shop - tips for retail entrepreneurs

As an entrepreneur looking to finance your business, before you explore any credit or funding solution, you need three things: 

1. A business plan 
2. A business strategy, which outlines the key business decisions for your company
3. A clear idea on your financial needs to ensure your company launch and your business success.  

This is crucial for managing your money effectively and ensuring your business’s financial health from the start. Your business finance strategy will be the foundation of your success.

Your financial forecast is a financial presentation of your company’s strategy. It comes from your business plan and it consists of two key elements:

1. The financing plan: This lists all needs to be financed and resources to be mobilised, along with their impact on your business. It’s essential for determining how much money your business needs.
2. Cash flow budget: This includes cash flow projections and determines a theoretical calculation of the estimated end-of-month balance, ideally positive. Understanding your cash flow is crucial for managing your money effectively.

This exercise confirms the viability of your project and is essential in your search for financing. Take time to refine your financial analysis; the more precise you are about the amounts you need to consider, the easier it will be to obtain they money you need for your retail business.

Making a personal contribution helps to create a higher credibility to your business. It shows you believe in its success enough to be the first to invest your resources in it. As the business owner, you will be expected to contribute to cover a share of your financial needs when applying for a business loan or exploring other financing options. 

This personal investment demonstrates your commitment to potential lenders and increases your chances of securing the financing your business needs.

Your personal contribution may include:

1. Your personal financial contribution and contributions in kind to your business.
2. Raising funds from friends and family, known as “proximity capital” or “love money.”

For business buyouts or starting a new retail venture, consider these financing options alongside traditional bank loans:

1. Equity capital: This should represent 20-35% of the purchase price, including savings, donations, and honour loans. It is a crucial part of your business finance strategy.
2. Vendor credit: The seller agrees to payment over 1-3 years, with a 50% limit. This can help with your cash flow.
3. Leasing: Also known as leasing, used to finance equipment for your business. 
4. Crowdfunding: Allows individuals and companies to finance business projects with annual returns. 

Each of these options offers unique advantages for financing your business. It’s crucial to evaluate which solution best fits your specific needs and financial situation when seeking funding for your business. And remember, you can always combine different solutions together.

A business bank loan remains the most common means of financing a start-up or buyout. Before applying for credit, remember the two main reasons for rejection:

1. Lack of project coherence in your business plan
2. Insufficient personal contribution to your business finance

Banks typically expect a personal contribution of 20-25% for start-ups and 30% for business takeovers. Your financial forecast serves as proof of the guarantees you’ve provided. 

Bankers also examine:

• Your financial and asset situation
• Project feasibility and industry data
• Start-up costs for equipment and stock
• Business start-up formalities

Note that when financing your business:

• Indebtedness is generally spread over 7 years
• Loans don’t exceed 70% of the purchase price
• Banks require guarantees on financed property and personal sureties

Consider engaging a finance broker to help present your case and secure the best credit terms. They can assist in navigating the complexities of business loans and improving your chances of approval when financing your business.

When traditional banks turn down your loan application, don’t lose hope. There are alternative ways of financing your business

An honour loan is a loan without guarantee or personal surety, typically with zero interest rates. It’s allocated directly to you as an individual and counts towards your personal contribution. Support networks like Initiative France, specialise in this scheme for business finance.

When requesting an honour loan, you will be asked to present your financing application to a panel of professionals assessing your business project’s credibility. If the panel agrees to support your project, it would strengthen your case with banking institutions. For innovative projects, awarded amounts can reach up to €90,000, providing significant funding for your business.

Microcredit is another financing option when banks turn you down. It aims to create or sustain your job as an entrepreneur. Your application for this business finance option is judged on:

1. Your entrepreneurial profile
2. Business plan quality
3. Repayment capacity

Microcredit offers post-approval support, assisting with administrative procedures, cost control, and business development. This can be invaluable when you’re just starting your business and need guidance on financial planning and managing your money.

1. Develop a detailed financial forecast and business plan to secure funding.
2. Build a substantial personal contribution to gain credibility with lenders.
3. Maximise your chances by combining multiple financing solutions for your business.
4. Understand your cash flow and financial needs thoroughly to manage your money effectively.
5. Explore alternative funding options if traditional loans are not available for financing your business.

Remember, financing your business is a crucial step in realising your entrepreneurial dreams. By carefully preparing your financial plans, exploring various funding options, and presenting a solid business case, you’ll be well on your way to securing the necessary funds to open your store.
Don’t hesitate to seek professional advice and leverage resources to support your journey in retail entrepreneurship.

Calculate your break-even point to understand when your business will become profitable, and consider how you’ll manage payment terms with suppliers to maintain healthy cash flow. With the right financing and planning, your future shop can become a thriving reality in the competitive retail landscape.
Your business finance strategy will be the key to your success in managing your money and growing your company.

When setting up your shop, remember that financing is just one aspect of your journey. You’ll also need to consider how to stock your store and create a profitable assortment. If you’re specifically interested in opening a clothing store or a food business, there are unique considerations for each type of retail venture.

Lastly, don’t forget to explore the best entity to create a retail business, as this decision can have significant implications for your finances and legal obligations. With careful planning and the right financial strategy, you can turn your retail dreams into a successful business reality.