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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:

Capital Access: Cathy Amato Has A 20-Year History That Lenders Love »

Multi-Unit Franchisee

Cathy Amato expects to do $30 million in combined sales for 2012. That's a far cry from the less than $250,000 her company did when she first started two decades ago. Amato, and partners Martha Jordan and Rick Riley, collectively owns and operates 55 Subway restaurants in San Antonio and Austin, along with 1 Mooyah Burgers & Fries, and 3 Ruby Tuesday locations.
She has come a long way since her first job at 14 as a busboy and dishwasher (by hand) at the Highway Café in La Vernia, Texas. "I never had any aspiration or skill set that would necessarily help me be successful in the restaurant industry," she says. "I started at the ground floor and through hard work and applying myself I've been able to move up the ranks. But also, I have been able to go out on my own and build a substantial company...

Feature Story:

We're Not Through Yet: Keep A Cool Head As Indicators Rise »

By Carol M. Schleif

In my previous column I made several suggestions for successfully navigating our times to a brighter future. The markets had been historically, mind-numbingly volatile all year, taking the gyrations to record proportions. Frustration with the status quo among investors was high and concern over volatile stock prices, developed country politics, and consumer and government debt levels dominated the media. What a difference a couple of months can make! When the numbers were tallied in early April, we had just finished the best first quarter since 1998.
We need to stay calm because we're not through yet.
True, the markets got off to a roaring start this year. Investors suddenly swung from nervous and uber-conservative to seeking return--and risk--in far-flung places and asset classes...

Feature Story:

Tax Credit Screening: Turning The Hiring Process Into A Profit Center »

By Jason Hamilton

One of the largest uphill battles a franchise owner faces is combating the costs associated with hiring, training, and retaining good people, particularly in businesses with a high turnover rate. Local, state, and federal governments set aside billions of dollars every year meant to incentivize hiring that can offset these costs. Unfortunately, the complex hiring incentive landscape means that businesses are leaving millions on the table.
Three key challenges keep employers from capitalizing on tax credit opportunities.

Feature Story:

The Sponge Technique: Squeeze The Balance Sheet To Improve Cash Flow »

By Steve LeFever

Everyone knows the value of a sponge: it absorbs water. This is a pretty good deal. Well, your company's balance sheet is just like a sponge--except that it soaks up cash instead of water. This is not necessarily a good financial deal. As a sponge nears its capacity to absorb additional water, it becomes increasingly less efficient. The same thing occurs with your balance sheet, a phenomenon that has two basic causes.
Increasing sales--or growth--creates a need for additional money to finance an increased level of assets. As we have noted before, the main source for most companies is from creditors--in other words, debt. Risk (in the form of increased debt) increases accordingly, and increasing interest expense may even put downward pressure on profits...

Feature Story:

On The Down Low: New Report Finds Low-Cost Franchise Opportunities Still The Most Popular »

Multi-Unit Franchisee

Turns out low-investment franchise brands carry a lot of weight. Although they may cost less than some of the big names in franchising, they have a significant presence in the market, according to a new report from Franchise Business Review.
"When people hear the word 'franchise,' it's often the big food brands--McDonald's, Dunkin Donuts, Papa John's--that come to mind. But it's the low-cost franchise opportunities--those with an average investment of less than $100,000--that are among the most popular and sought-after," says the publication.
Franchise Business Review's annual report--Low-Cost Franchises--looks at lower cost franchise opportunities and names the top companies based on franchisee satisfaction. It also looks at the types of businesses that fall under the low-cost umbrella, what franchisees can really expect from their investment, and what the pros and cons are to investing in a low-cost franchise...

Feature Story:

Thinking Big: 3 Suggestions For A Brighter Future »

By Carol Schleif

A couple of years ago, I went through an exceedingly challenging period in my personal life, where the path I'd been on for several decades proved flawed, and I had to figure out how to pick up the pieces and move on. The status quo had become unacceptable, even though the way forward was unclear. Just then, a friend reminded me that "Sometimes the only way out is through"... no matter how frightening, frustrating, and confusing that path is.
It strikes me that most developed economies are in that very same spot right now. The path we've been on--debt accumulation, deficit spending, entitlement and instant gratification mentality, and living way beyond our means--is faulty, but which way forward? Indeed, the pendulum has swung so far into uncharted territory that there are no equivalent periods in history to give us a hint at how to dig ourselves out of the mess we've created...

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...

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