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Access to capital is the lifeblood of franchise growth. Restricted lending policies of the past few years continue to be a challenge for franchisees, who need access to capital, whether to survive or expand. Lenders today are searching for solid franchisee organizations to do business with, but what exactly are they looking for? Learn what bankers, franchise lenders, private equity firms, and other capital sources want to see in a borrower - and make sure you are managing your organization in ways that make you attractive to lenders.

Learn more about the franchise finance and capital marketplace, and what factors are affecting your chances to borrow the capital you need to grow.

Feature Story:

Wings And A Prayer: Hard Work And Faith Pay Off For Johnny Collins »

Multi-Unit Franchisee

Johnny Collins is a man of faith and endurance. He knows what kind of hard work and dedication it takes to run a marathon, serve as a firefighter, and work as a security officer. He also knows how to be a successful franchisee. He loves to overcome challenges.
Even after he opened his first Wingstop in McAllen, Texas, making the store work seemed like a test of his faith. "Several times, I said, 'Oh my goodness, what did I go do?'" Collins says. "I'd get on my knees and pray."
One problem was that Wingstop was an unknown quantity in his market. In that area, he says, small, mom-and-pop restaurants open up regularly--and shut down just as regularly. Potential customers didn't seem to be giving Wingstop a chance. So Collins hung flyers on every door within a three-mile radius...

Feature Story:

10 Ways To Boost Profits: When Raising Prices Isn't An Option »

By Steve LeFever

Today's economy has resulted in some brutal price wars that make it difficult, if not impossible, for many companies to raise prices. Revenues have decreased dramatically in many cases. As a result, profits have taken a hit and some owners who were expecting to transition out of their businesses over the next several years have had to delay their exit plans.
Many of us have done as much cost cutting as possible. (Does the phrase "to the bone" ring a bell?) But based on the evidence we're seeing from around the country in many different types of industries, we believe that opportunities to build profits remain. And profits are more important than ever for your company's day-to-day survival and long-term health, and for laying the foundation for a successful ownership transition...

Feature Story:

Capital Access: Sunita Sagar Takes A Turnaround Shot »

Multi-Unit Franchisee

Sunita Sagar got her first shot at franchising in 2007, when she was given the chance to buy an underperforming Denny's in Campbell, Calif.
"That restaurant was going downhill," she recalls, "and we turned that restaurant upside down. We turned the people around, we turned the operation around, and we turned the sales around. We started staffing the restaurant with the right people, and then we had an opportunity to purchase more. So we bought three stores in Fresno in 2008."
Sagar stepped in on each, where she could see for herself what needed to change. "We took over those three stores and managed those stores for a few weeks," she says. "We made some staffing changes, found people right for the business, and took a few months to bring those stores around...

Feature Story:

Capital Access: Branca Family Expansion Is Heading West »

Multi-Unit Franchisee

Robert Branca, Jr., is part of the Dunkin' Donuts family...seriously. Branca and his family own 60 Dunkin' Donuts in New England. But count his extended family, including in-laws, their siblings, spouses, children, and cousins, and they own more than 700 Dunkin' Donuts in all and dominate the brand throughout New York and New England.
The 48-year-old Branca is now looking at opportunities to expand west of the Mississippi. He's also developing an original concept "based on European tradition" that he'll grow through franchising.
Branca attributes the success of the family to the way in which they've leaned on each other. "There are huge resources among these franchisees. We have our own independent franchisee association with strong educational components and other assistance...

Feature Story:

Moving Forward In The New Normal: Surviving And Thriving In A Changed Economy »

By Carol Schleif

Is anybody else as fed up as I am with hearing about how bad things are? Let's get on with it already and start focusing on what we can do to survive--and thrive--in the new reality.
Periods of meltdown and renewal are not at all unusual for the United States. Read John Steele Gordon's book An Empire of Wealth for numerous examples of American ingenuity and stick-to-it-ness pulling us back from the brink of financial meltdown. This is the time when we need to pull ourselves up by the proverbial bootstraps, dust ourselves off, and figure out how we are going to push forward. At the risk of stating what should be painfully obvious, here are my thoughts on some of the things we can try to get "unstuck" and help us move forward:

Feature Story:

Capital Access: Chirag Patel Is Expanding His $9 Million Operation »

Multi-Unit Franchisee

Chirag Patel left India to work as an engineer and consultant in America. But it didn't take long to learn that franchising offered big opportunities for anyone with an entrepreneurial spirit.
In 1999, he acquired his first Dunkin' Donuts in Burlington, N.J., and expanded to 10 units in New Jersey, New York, and Pennsylvania. "The key challenges I faced as a new franchisee were starting in a completely different business--franchising wasn't around in India when I was there--and understanding fundamentals such as system development and financial management," he says. "Having family members in the business made the transition go much more smoothly." (All of Patel's family members, with the exception of his parents, are in the U.S. now.)
Two years ago Patel became CEO of Philadelphia-based Prayosha Philly Group, where he is one of four partners, along with family friends Ashok Patel, Dasharath Patel, and Atul Patel...

Feature Story:

Capital Access: Michael Ansley Uses Cash And Credit To Grow His Franchise Business »

Multi-Unit Franchisee

In 1996, Michael Ansley and his former college roommate asked their fathers for loans to buy their own franchise (Buffalo Wild Wings, then known as BW3) unit near Ann Arbor, Mich.
"We were young and didn't know what we were doing," he recalls. "But we learned how not to run a restaurant and where not to put it." Within a decade, Ansley had grown to 22 Buffalo Wild Wings units throughout Michigan and Florida. The entrepreneur is also involved with the franchise side of Bagger Dave's Legendary Burger Tavern in Michigan.
Ansley's business endeavors generated $45 million in revenue in 2010 and close to $60 in 2011. But his markets have faced difficult and challenging times during the past couple of years. Still, he's optimistic and offered this insight on the economy, his markets, and how he comes by capital...

Feature Story:

Danger Signals?: 20 Signs Your Business May Be In Trouble »

By Steve LeFever

In business, owners often become trapped because they don't heed the messages their business sends and don't pay attention to basic principles.
The following checklist represents a clear set of danger signals (situations and issues) that have a clear and negative effect on cash flow. Take a few minutes under the harsh, cold light of reality to ask yourself how many of the following danger signals exist in your business. Then evaluate carefully their implications.

Feature Story:

Show Me The Money: 5 Questions To Ask The Franchisor About Financing »

By Mike Rozman

Thinking of buying a new franchise? Here are 5 questions to ask the prospective franchisor in order to determine if they will support you with financing.

1. How do you help me build my financing request?
The first challenge you’ll face in seeking a business loan is to prepare a bank-ready package. Banks want to work with serious borrowers and nothing shows you are serious like having all the documents a banker needs to see to move forward. Furthermore, banks look for very specific information to understand if your business is a fit for their very specific lending criteria. The best franchisors recognize that many of their current and future franchisees would benefit from assistance when seeking a business loan and therefore, they step up to support them...

Feature Story:

Guaranteeing Personal Assets On A Commercial Loan »

By Steve Huntley

The inevitable risks and how to avoid them
Franchisees, business, and property owners who have personally guaranteed commercial loans face a challenging situation when banks seek repayment, especially in today's state of economic distress.

Lenders typically classify guarantors into three categories: (1) Well-capitalized guarantors with an expected profitable future relationship; (2) Guarantors with the potential for positive future business; and (3) Guarantors with a downside risk.

The relationship with lenders often becomes negative when guarantors fall into the third category. Guarantors in this category may experience a contentious situation with lenders and may find themselves in litigious circumstances in which money is wasted on legal fees and property values decline significantly...

Feature Story:

Did Someone Say "Profits"?: Understanding The Financial Operating Cycle »

By Steve LeFever

It happens every year, usually in February or March. Business owners across the country meet with their accountants to review the previous year.
The accountant says to the owner: "Congratulations, you made a profit." Of course, with the recession of the last four years, they are saying that less often.
Regardless, what are the two most common responses from owners? You're correct if you said the #2 response is: "If we made a profit... what's the line from Jerry Maguire? 'Show me the money!'" It's the profits versus cash flow issue...we'll discuss that later.
Consistently, the #1 response is: "Make the profits disappear... I don't want to pay any tax!" Of course, the accountant says: "Watch carefully, the fingers never leave the hands! Poof...

Feature Story:

When It's Time To Sell: How To Boost The Value Of Your Business »

By Mike Handelsman

There's no arguing that banks, potential investors, and creditors look heavily to a company's financial statements to determine its value. However, past financials often aren't the whole story. Here are some additional factors to consider as you seek to maximize your company's value - whether you plan to sell soon or simply want to be ready when that day comes.

Proven Potential for Increased Profitability
Perhaps the most important aspect of making a business attractive to a potential buyer is building their confidence that the business has the potential for increased profitability. Of course, step one is to produce documentation showing steady, reliable revenues and cash flow, but other steps can help paint a picture of untapped potential...

Feature Story:

Tax-Deferred Exchanges: A Creative Financing Tool For Franchisees »

By Andy Gustafson

Smart franchisees are always looking for ways to increase cash flow and reduce expenses. One strategy to consider for improving the bottom line is to replace a franchise property with one in a better location or to upgrade franchise equipment. Franchisees can use a creative financing tool, 1031 exchanges, to defer capital gains and recaptured depreciation taxes when purchasing real and personal property of equal or greater value. Savings on deferred taxes represent interest-free loans for higher-yielding acquisitions. Successful completion of a 1031 exchange depends on finding eligible replacement property and meeting identification and transaction deadlines.

How a 1031 exchange works
Tax-deferred exchanges, also known as 1031 exchanges, are enforced by the IRS...

Feature Story:

Looking Back, Looking Forward: Investing Insights For The 21st Century, Part I »

By Carol Clark

As we've seen in high-definition in the past few months--from the natural and man-made disasters in Japan, to the rolling upheavals across North Africa and the Middle East, to the volatile whipsaws in food and energy prices--the factors that must be accounted for while structuring financial affairs are much more complicated than ever before. Plus, the information is coming at us much more quickly, and the potential ramifications for our financial affairs are much more dire than in the "good old days."

The 1980s and 1990s were great times to be an investor. Interest rates were falling dramatically, instigating a huge and lasting bull market in fixed-income investments. Credit became easy to obtain and even our tax policies encouraged consumerism...

Feature Story:

Expansion Analysis: Sales Are Only Half The Answer »

By Steve LeFever

Growth: the all-American measure of success. But what kind of growth? And how do you measure growth in relation to success? For too many businesses, intelligent and well-intended owners settle for sales volume alone as the primary indicator of achievement.

Don't get me wrong, sales are important. I'm not trying to appear un-American or anything, but my premise here is that often growth--or expansion--occurs without an effective analysis or understanding of the underlying costs.

For most businesses, growth means expanding existing facilities or opening additional outlets. However, expansion costs money and the analysis has two aspects: financial and marketing. Financial answers the question: "What do we need?" Marketing answers the question: "What will we get?"

Here's an example from the folks who are best at this: the Golden Arches...

Feature Story:

Well-Coordinated: Balance Your Portfolio With Complementary Brands »

By Tracy Staton

The inspiration for Randy Elias's expansion into a new franchise concept came from a restaurant he'd been frequenting for years. In a prosperous area of Atlanta, a Mexican eatery called Jalisco sat next door to a Baskin-Robbins ice cream shop. With the help of customers looking for something sweet after a spicy meal, that Baskin-Robbins location was the number-one shop in that company, says Elias.

"Scott Paton, my business partner, and I saw the success with those two restaurants, and we modeled our business plan after that," says Elias. Good plan: today the two operate a very successful Moe's Southwest Grill in the Atlanta area, consistently coming in among the top 5 percent of the franchisor's 70 locations in the area. When a space opened up a few doors down from that restaurant, they decided it was time to expand...

Feature Story:

Capital Ideas: Bridging The Lender-Borrower Gap »

By Eddy Goldberg

Access to capital has been a bane to franchise growth for nearly three years. Much of the blame has been placed on lenders, who have been notoriously gun-shy since the September 2008 financial debacle. Stricter underwriting policies, the result of increased regulatory oversight, bankers say, is to blame. Of course, that's not the whole story. Other obstacles are involved, many of which can be eliminated by franchisees--but not without help from their franchisors.

That's one of the major takeaways from the IFA Small Business Lending Summit in April, which brought together about 200 bankers/lenders, franchisees/franchisors, and government regulators/officials seeking to improve the lending environment for franchisees.

While it shouldn't come as news to any savvy franchisee seeking capital, bankers at the event repeatedly spoke about a communication gap between the lending community and the applicants who approach them...

Feature Story:

Entitlement "De-Programs": Ensuring Your Children Inherit Your Wisdom, Not Just Your Assets »

By Carol Clark

A financial legacy can provide an incomparable "leg up" to offspring--if they are adequately prepared. However, inelegant handling of the training stage can create generations of enmity, or breed unmotivated individuals with an entitlement attitude. A family business (especially if some offspring participate in day-to-day operations while others do not) presents even more complexity, particularly in the area of "fairness." Following are a few things to think about as you grapple with starting the preparation process.

Unveil your own financial management beliefs--the sooner the better. In the frenzied intersection of building a business and raising a family, it can be overwhelming to take time out to discuss the emotionally laden subject of "money" with your heirs...

Feature Story:

Is Private Equity Right For You?: FAQs For Multi-Unit Operators Seeking Capital In 2011 »

By Eddy Goldberg

You might not know it from reading the news, but there's a lot of money out there looking for a good home, and high-performing multi-unit franchise companies have become targets for private equity investors. Estimates of available private equity peg the pent-up funds at about $500 billion, more than enough pie for most multi-unit franchisees to get a slice--if they have what it take to appeal to investors.

Developments in the mergers and acquisition universe, along with the growth in large multi-unit organizations and a stabilizing economy in 2011, have combined to produce what experts predict will be a favorable environment for franchise sellers with the right stuff: a strong national brand; a positive cash flow for the trailing 12 months; an infrastructure able to leverage the investment; and an organization large enough to make the deal worthwhile in terms of the costs and time involved for both buyers and sellers during the due diligence/courtship process, which can take six months to a year or more...

Feature Story:

Understanding Bankers: Basic Rules To Boost Your Odds Of Getting A Loan »

By Steve LeFever

Back in 1981, with the prime borrowing rate at an all-time high of 21 percent, most bank customers felt that those cameras they have in banks to photograph robbers should, in all fairness, be pointed at the "real" crooks: the lending officers. At such rates most companies found it difficult (if not impossible) to borrow money. Actually, it wasn't so hard to borrow money--it's just that no one could repay it.

Those days of exorbitant interest rates are gone now, at least for the time being. In fact, interest rates are at all-time lows. However, the problems of finding capital and repaying loans remain, and many business owners have feelings of animosity and bitterness toward banks and bankers as a result of their bad experiences...

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