You survived the Great Recession, your business is growing again and you see an opportunity to expand. But economic growth is painfully slow and your banker, the ultimate naysayer to rapid growth, refuses to stake your aggressive vision.
One solution is franchising your business.
“We had been in business for nearly a decade when we decided to franchise, converting our current business model to a franchise system,” says Sandra Iventosch, president of Wilmington, North Carolina-based Park Select Franchising Opportunities. The company offers parking management systems in areas where vehicle owners often park illegally in privately-owned lots.
“A Park Select franchise offers parking management services to business and property owners in any area with a limited amount of parking or where the demand for parking exceeds the number of available spaces,” according to the company’s franchise disclosure document (FDD). Franchisors are required to provide prospective franchisees their FDD before they buy a franchise unit.
But creating the FDD and other legal documents requires professional help. “We did our research and we hired the best in the market — Francorp,” Iventosch says. Francorp offers franchise feasibility studies and helps its clients create the franchise documents. “Together we worked for nearly two years re-designing our systems and tools to offer the ongoing support systems we believe franchisees need and deserve.”
The FDD also says, “The total investment necessary to begin operations of a Park Select franchise is $55,000 to $101,000.” In order to help franchise unit buyers finance their start-up, Park Select listed its company on the Franchise Registry. That means the U.S. Small Business Administration has reviewed its franchise documents and determined that the Park Select does not impose excessive controls on its franchisees. Thus, according to the agency’s guidelines, franchise unit owners are independent businesses and may be eligible for SBA-guaranteed loans.
Mike Rozman says, “Small-business loans under 100,000 are particularly difficult to find.” He is the co-president of BoeFly, Ltd., the premier matchmaking platform that matches lenders with over 2,200 of its lender members. “Some of our lenders make business loans as low as $5,000 nationwide,” he says. “Additionally, our borrowers often get multiple offers from lenders nationwide, and even from banks in their own region.”
Meanwhile, John Rorer is growing his Richard’s Foodporium franchise, a well-known brand in southwest Florida. He is the company’s chief executive and says, “We made some mistakes as a new franchisor.” Richard’s Foodporium has 17 stores, 14 of which are corporately owned and the other three are franchised. The company sells an array of organic and gluten-free vitamins, supplements and bulk foods under its own label and others’ brands, and is the only nationwide franchise of its kind, according to its website.
“The toughest element” for a franchisor, Rorer says, “is the independence of the franchisees, and not wanting to accept the systems and controls in place as a franchisee.”
Some entrepreneurs want more freedom than the constraints typically encountered in a franchising system. “So, in that respect, I would also focus on those who may have had prior successful franchise experience and truly ‘grok’ the process and relationship.”
Additionally, “We will tighten our qualifying criteria,” Rorer says. He wants franchisees to be stronger financially and have retail industry experience.
BoeFly’s Rozman says, “Our lenders want financially strong borrowers as well as a brand that has a proven platform.” Although many bankers underwrite the borrower first, there are others that restrict their lending to proven brands that they know and have had favorable experience with in the past.
“Growing franchise brands are members of the BoeFly platform because we open up nationwide choices for financing that they were previously unaware of,” Rozman says. “Over 100 franchise brands are members of BoeFly and the list is rapidly increasing.”
Steve Overholser, chief financial officer and treasurer of Great Clips said that the tighter money markets required his company to look beyond its traditional financing resources. “Our existing franchisees (are) looking to continue to expand,” he says. “New franchisees (are) coming into the business and beginning to build their first units.” He spoke to attendees at a webinar hosted by the International Franchise Association. “So that’s one of the reasons why we made a connection with the folks at BoeFly initially in 2010,” he said.
Having a reliable source of financing for franchisees is a key ingredient to grow — especially because banks are more conservative now than there were during the boom years.
Jerry Chautin is a former entrepreneur, commercial mortgage banker and business lender. He writes and blogs about business and real estate for several publications and is SBA’s 2006 national “Journalist of the Year.” Jerry is a volunteer business mentor with SCORE, “Mentors to America’s Small Business,” offering free business advice. Post your comments and ask questions on this Blog or send Jerry an e-mail.
Copyright © 2012 Jerry Chautin — All rights reserved.