One of the most common problems in the franchise sales process is helping prospective franchisees secure financing for their new investment. As a franchisor, should you offer financing to your franchisees? Or should you just not get involved? How much help is too much? And when should a franchisor say enough is enough?
Options for Franchisee Finance
In addressing this issue, you should first realise there are a myriad of options for franchisee financing assistance. These range from a relatively low level of involvement (such as assistance in the development of a business plan) to a high level of involvement (such as providing direct financing to franchisees).
The level of involvement that a franchisor should have in the finance process should be based on several factors: size of investment, nature of the assets financed, the profile of the targeted franchisee, the ability of the business model to carry financing, the financial strength of the franchisor and the relative demand for the franchise in question.
Since significant involvement on the finance side involves some degree of risk, the first question you should address is the extent to which your involvement is necessary to meet development goals. In essence, if you are not having any difficulty selling franchises, a minimalist approach will certainly suffice. Provide outlines for business plans, but do not put any of your hard-won assets at risk.
There are also some non-finance alternatives to easing the franchisee’s financial burden that would open a franchise opportunity to a wider market of prospective franchisees. Some new franchisors have chosen to reduce or waive franchise fees altogether for their initial franchisees. Franchisors who double as manufacturers or suppliers may offer discounts or extended terms on initial inventory. But franchisors should beware. If these provisions are structured as an ‘introductory offer,’ they need to be disclosed.
It is a New Business
While a franchisor thinking of getting more involved in the franchise finance process may initially look at the advantages of providing financing to franchisees, the downside can be considerable.
Yes, providing financing assistance can increase the number of prospective franchisees who might otherwise qualify for your franchise, but these same franchisees are likely to be the worst credit risks with the highest likelihood of loan default. And there is certainly an argument that we should allow Charles Darwin to sort our prospects for us. Any time a franchisor is taking on any incremental exposure in the lending process, the default rate on these franchise loans should be of substantial concern, and should not be overlooked.
Likewise, it is important to understand that providing limited guarantees, credit enhancements or direct loans to your franchisees will encumber your balance sheet with contingent liabilities that may, in turn, make it much more difficult for you to obtain a loan should the need arise. Such a posture may make it difficult or impossible to build that new building, finance additional corporate growth or acquire that competitor. In essence, this financing can eliminate the very leverage you were trying to create when you turned to a franchised growth strategy in the first place.
Moreover, most franchisors are distinctly unqualified to get into the lending business. First and foremost, they are not in the lending business, which is ultimately a business of assessing risk and assigning a fee to that risk. And equally important, the franchisor who gets into the direct lending business has a built-in conflict of interest that could easily cloud his or her judgement.
Even if a franchisor can overcome the difficulties of mastering this new business, many will not qualify from a financial perspective. To provide a meaningful guarantee of any type, you must first evaluate your own creditworthiness – as each such guarantee will encumber your assets, and a fast-growing franchise can rapidly outstrip its balance sheet. And, if those guarantees come due because of loan defaults, that debt can easily consume an organisation.
Get Paid for Your Risk
If you do choose to provide some form of credit enhancement or otherwise assume risk on behalf of your franchisees, you should treat this credit enhancement as any other part of the value proposition – and turn it into a profit centre.
It is not enough to benefit from the existence of incremental franchisees. The economic benefit you receive from those fees and royalties represents your return for the value proposition you have created by being a good franchisor.
Over time, even the best finance programme is likely to see some defaults, and you should seek to offset those defaults by realising interest on those loans – enough to offset administrative costs, forecast defaults and still provide some profit.
Osteostrong: An Exploding Global Movement Of Positive Change
A Kyle Zagrodzky Article by Dirk Coetsee.
Kyle Zagrodzkys’ sincere passion for what he does made me smile in recognition of traits that I am always searching for in a leader, which is a love for people that is drastically enhanced by the positive multiplication factor of having the heart of a servant.
The climate of the interview was one of tangible enthusiasm as the author witnessed a serial entrepreneur at the cusp of global expansion, share his thoughts on his company with refreshing transparency.
The CEO and founder of OsteoStrong speaks with a sense of awe, visible in his eyes, of his business relationship with Tony Robbins and his mission to change lives through this innovative franchise system.
Yes, you read correctly, the iconic performance coach and entrepreneur Tony Robbins who authored Awaken the Giant Within and recently Money Master the Game: 7 Simple steps to financial freedom, is a very enthusiastic and committed advocate for OsteoStrong and Kyles’ business partner. Sincerely and truthfully sharing the same value system is often the rock on which sustainable, successful and world-famous business partnerships are built.
The franchise system OsteoStrong, is the collateral beauty emanating from Kyles’ most highly regarded value of giving to others and is set to become a global phenomenon within the next couple of years.
OsteoStrongs’ patent-pending robotic technology is based upon the research of Dr. John Jaquish, PhD who’s journey in life sciences started when his mother told him that she was diagnosed with osteoporosis. He invented a device that’s purpose is to trigger the effects of high impact loading without the risk of injury. The result of a once-weekly treatment utilising this device is over 14% gains in bone density in both the spine and hip over a just 6 months!
The reader, at first glance might have the same impression as the authors initial paradigm of this systems’ value offering, that is simply put, that OsteoStrong is the most effective cure purely for those at an advanced age with the focus of combatting or preventing osteoporosis.
The above assertion is however a dramatic deviation from the whole truth. Although this system is proving itself to be the most advanced and effective cure for osteoporosis, any athlete engaged in any discipline and of any age can receive a vast range of performance enhancing benefits from this innovative system.
When you increase your skeletal strength, it dramatically impacts your total strength output. As an example, during a four-year case study that engaged 500 subjects, the average strength gains were increased by a whopping 290%. These results were achieved through a total of 1 session per week at seven minutes per session.
The author was amazed to learn from Kyle first-hand that the awe-inspiring and very typical results are achieved with virtually no effort on the clients’ part. Your total commitment as a client is to go to a facility once a week for seven minutes, engage in four extremely safe “trigger events” (high impact loading) dressed as you are to receive a plethora of benefits over time.
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It is common for clients to see a rapid and vast improvement in speed, agility, and balance. Clients also in general report that general niggles such as shoulder, lower back and knee pain disappear. A compound effect of the combination of all the benefits mentioned is a much-improved general sense of wellbeing.
OsteoStrong does not compete with anyone in the gym or wellness industry. Instead, its highly unique value proposition compliments the offering of all businesses related to fitness and health.
This cutting-edge innovation is a franchise system, a business, yet more importantly it is exploding as a global movement of positive change. Commitments for the development of over seven hundred and fifty franchises have been signed and the franchise management team is working overtime to keep up with the amount of franchise enquiries. They do keep up though, as their commitment to positively affect as many lives as they can, is unshakeable.
As the author was about to end the interview with Kyle he recognised a certain peaceful look on this business leaders’ face that can only be derived from a sense of knowing that he is changing lives and making a difference through sincere giving. We are all heartily invited to take part in this movement of positive change that is OsteoStrong, and for the sake of our own general wellbeing we should not turn down the invitation.
What Franchise Model Is Right For You?
Learn what factors determine which franchise model is right for your business.
Many years ago, the most common franchise was the traditional brick-and-mortar location such as fast food restaurants and storefronts. Modern technology has brought a variety of business models to the marketplace that offer several different models to choose from.
Home based businesses are very popular these days since technology has made it possible to perform many business activities remotely. These businesses include accounting and professional services, consulting, digital and other marketing services and a variety of other models.
These franchise models offer owners many benefits including lower operating overhead costs, fast and easy startup and the convenience of working from home. Consider the following when evaluating a home based franchise business:
- Are you a good time manager? Working from home allows you to live and work in the same place, which is great for some but a nightmare for others. Many have a hard time concentrating on work with the distractions of home such as children, pets, spouse or even TV or home projects. On the other hand, many struggle with stopping the work to enjoy family time.
- You should give yourself specific starting and ending times to create a regular work schedule.
- Have a door with a lock. You will need to have a private and professional workspace. Additionally, it is equally important for you to be able to shut the office door at the end of the day and focus on home life.
Some business owners prefer to work out in the field as opposed to being tied to an office or storefront. Mobile businesses can be flexible and offer lower startup costs. These businesses include food trucks, home and business repair and maintenance services, pet grooming and other creative service models. Here are a few things to consider:
- Make sure that your franchisor offers a strong marketing programme. Mobile businesses do not have the benefit of walk-in traffic so they must generate all of their business with outbound marketing efforts.
- Use technology to maximise your efficiency. Time is money as they say, especially when you have to factor in travel time between paying jobs. On demand scheduling apps, mobile point of sale systems and communication tools can add to your bottom line when implemented properly.
- Check your homeowners association (HOA) rules if you plan to park a commercial vehicle outside of your garage. Many HOAs do not allow any vehicles, including trailers, with logos or wraps to be parked in plain view.
Brick-and-mortar locations include the standard restaurants, retail, hotel, storefront and offices. This model offers the potential benefit of walk-in traffic which may be a better fit for someone who is more comfortable having customers come to them as opposed to business models that require outbound marketing or sales. This model generally requires more planning and related expense due to the build-out and construction of the site before opening. Before you decide to open a brick-and-mortar franchise, you will want to keep the following items in mind:
- Location, location and location are said to be the three most important factors in the success of a brick-and-mortar business. Proper due diligence is mission critical to ensure the best location. The franchisor may offer site selection assistance or refer you to qualified service providers that can help you find the best options.
- Use a qualified commercial real estate broker. You should interview a few brokers to make sure that you find one that you feel will best serve your needs. You may find a broker that has experience in your specific business category, which can be an added benefit.
- Read Brick and Mortar Franchise Success by Carolyn Miller. Miller is the founder of the National Franchise Institute, which offers classes and education for location-based franchise operators. This book offers a wealth of money and time saving tips and trick that are a must for anyone opening a brick and mortar franchise.
Most franchise owners report that their business lifestyle was a determining factor in their choice of a business model. Consider the “day in the life” of each franchise model to see how they match up with your ideal business before you choose. You should be able to visit existing franchises or participate in a discovery day visit to get a good feel for how each model operates.
This article was originally posted here on Entrepreneur.com.
Get Into Your Franchisees’ Good Books: 4 Ways To Communicate Better
Build a better relationship with your franchisees to avoid conflict and strengthen your brand.
Your franchisees weren’t chosen on the basis of a friendship criteria, so it isn’t surprising that you may not get along with all of them. If they were just tenants in your building, that would be fine – but as partners in your business, your relationship with them should constantly be worked on, especially by you.
“Ultimately, the best relationships – whether personal or commercial – are typified by mutual respect and trust,” notes Sally J’Arlette-Joy, founder and CEO of Sandwich Baron. “Communication is key to keeping all parties informed about changes, potential issues and success factors.”
How well are you communicating with your franchisees? Do you know what their pain points are? Are you open to their ideas for the business?
Here’s a guide to building and maintaining mutually beneficial relationships between your franchise and its network:
1Create and maintain multiple communication channels
Leverage the power and convenience of technology to interact with your team when you’re unavailable in person. Not only is everyone aware of any changes or developments, it’s a simpler way to communicate with everyone at once, getting the message across quicker and in more ways.
“To be effective, however, the communication needs to be more than frequent,” advises
“It needs to be honest. Get caught in a single half-truth, and trust is destroyed.”
Emails, WhatsApp groups and productivity apps are great ways to communicate in-between monthly or more frequent visits.
2Hone in on honesty
Transparency is a key factor and requires you to trust your franchisees to run an honest operation. They should also be able to know you trust them, allowing them to return the favour.
“If, for example, an operation uses mystery shopping to uncover violations of standards and under-reporting of revenues, franchisees should know about it,” says franchise consultant Mark Siebert. “Hiding this from franchisees will foster distrust and conflict.”
Trust isn’t easily repaired, so emphasise its importance to your franchisees and practice what you preach – always be open and approachable, no matter the situation.
3Keep an open mind for opportunities
Most menu innovations, like the McDonald’s Filet-o-Fish – invented in 1962 by Lou Groen, a McDonald’s franchisee – don’t come from head office, but the guys running the network on the ground. They’re a result of a franchisee being unafraid to raise their hand, presenting a new idea, and being listened to by the franchisor.
“If a franchisor is willing to listen, and through meaningful dialogue between both parties, they may discover new ways to help the franchisee grow the business or exit the franchise as painlessly as possible,” says Monisha Prem, corporate advisor at M. Prem Inc.
Strong relationships with your franchisees dictate their respect for the leadership of the franchise. Not sure how to go about strengthening your partnership as soon as today? Start by ensuring you’re aware how franchisees feel and how you can change or improve upon that.
4Steps to a successful partnership
Before you message all your franchisees for a coffee catch-up, remember that the quality of communication often trumps the quantity.
Keep the communication lines open by applying the guidelines below:
- Whenever possible, take calls from franchisees rather than letting them go to voicemail; and always respond to messages on the same business day
- If possible, establish a dedicated franchise support line
- Every day, call at least one franchisee you haven’t spoken to in a while. Ask how they’re doing, how their family is, and what else your team could be doing to support their business.
- Never speak negatively about franchisees to an employee in the company. Communications relating to franchisees should always be respectful.
- Use a technology platform to track all communication with franchisees for staff members’ interaction with franchisees or should a dispute ever arise.
- Appoint one person in the company as the communications manager, and have all system-wide communications filter through that, ensuring consistent tone and accuracy of information.
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