Challenge The Pros: Inside Info From Those In The Know

"How has the capital market for franchise financing changed in the last 3 to 6 months, and what are you doing differently in franchise sales in the next 3 to 6 months?"

Nikki Sells
Vice President, Franchise Development
Tasti D-Lite

People with money can still get working capital. It takes longer, but it's available to those folks with good credit and collateral; not so for folks on the bubble. We've seen a slowdown with SBA loans as well as much more scrutiny: what used to take three to four weeks can now take a few months, and the answer is not always "yes."

Candidates interested in 401(k) rollover funding seem to be much more cautious about letting go of what is left of their 401(k). For years, and as recently as several months ago, home equity loans were still the number one avenue for folks to finance a franchise. Today that is no longer a viable option.

As we move forward into this new and challenging year, we continue to reach out to other sources of funding. We feel that if we are going to reach our 2009 goals, it's up to us to provide viable funding source options to our candidates. And each candidate has a unique set of challenges that may need out-of-the-box thinking. We have taken a long, hard look at our franchise sales process and are making changes that mesh with this challenging time. We have to be more flexible in some areas, but at the same time we must find out at an earlier stage which candidates are truly financially qualified, and which will or will not qualify for funding at this time.

In the first and second quarters of 2009, we will be very aggressive with lead generation and look at new and different ways to attract the types of candidates we want. We will stay true to our plan and be consistent with our development strategy. It's a good time to remember the basics of successful franchise growth, and to also remember that a franchise company must grow units to thrive and survive.

Our goals continue to be aggressive for 2009. Tasti D-Lite's culture is a true sales culture. Every team member supports the franchise development team 100 percent. I've encouraged my development team to stop listening to all of the bad news on TV and focus on the good things about entrepreneurism. Franchising continues to be the most viable means to the American Dream… even in bad times! We can actually make a positive contribution to the healing of our economy by helping our existing franchisees focus on the basics of profitability and by adding new successful units.

Tom Wood
President and CEO
Floor Coverings International

The capital market available for franchise financing (and most loans in general) has become very difficult for the average American since the collapse of many financial institutions beginning last August. Small businesses in the United States have seen the "perfect storm" in regards to business financing. Unfortunately we don't predict things will change very much in the coming months.

The three specific areas that have changed the dynamics of funding for the owner or someone looking to start their own business are:

  1. The devaluation of the U.S. market, with the average homeowner seeing their property worth decline 20 percent or more from 18 months ago.
  2. The stock market devaluation, which has most portfolios and 401(k) funds at 60 percent of the value they were last June.
  3. The scarcity of cash at most banks, which means potential candidates must meet very difficult requirements to secure a loan.

The impact on most franchise systems and potential franchisees has been devastating. Unlike most downturns in the economy that you can see coming, it seems many of us were caught off guard by both the speed and severity of the meltdown in the economy and in the financial sector in particular. Just six months ago, many of us were mired in a challenging business climate, but very few of us were prepared for the crisis that seems to have hit us almost overnight.

At Floor Coverings International we're facing an additional dilemma. While it is difficult to expand our franchise system with new units when potential franchisees are having difficulty obtaining financing, our network is outperforming the industry in solid fashion. So while we are seeing many competitors leaving the industry and closing their doors, this is seemingly a good time for us to expand our network and increase our footprint across North America.

Over the next year, we will be following a simple formula as a means of expanding our business: seek potential franchise candidates who have an investment portfolio with cash assets and who are not so reliant on financing; and look for expansion opportunities with other similar franchise networks that may be in danger of going out of business. The latter is a means of expansion we would not normally consider, but the change in our current business climate makes it a very viable growth path to consider and potentially pursue.

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