Franchising the Leasing of Business Equipment

Financing small-business growth is now moving into the field of franchising. Minneapolis-based Winmark Corp. is branching out from its portfolio of more than 800 franchised retail stores in the U.S. and Canada to a new brand allowing its franchisees to lease business equipment to small-business owners.

The new system, launched in October 2005, is called Wirth Business Credit. Wirth's executives maintain that the leasing options offered through its franchise system are flexible enough to fit any equipment leasing needs ranging from $5,000 to $300,000. The type of equipment involved is very broad and includes car wash equipment and telecommunication equipment as well as computers and printers.

The market for leasing is sizeable. The small-business segment in the U.S. consists of nearly 23 million businesses, and approximately 80 percent of this market leases equipment, according to the Small Business Administration.

Winmark franchises retail stores under the brand names of Play It Again Sports, Once Upon a Child, Plato's Closet, and Music Go Round. Those franchises generated $460 million in sales last year. Winmark decided to begin offering this new brand for two major reasons.

First, Winmark's management team, including CEO John L. Morgan, has extensive experience in equipment leasing and small-business financing. Winmark Capital Corp., for example, a subsidiary, offers medium to big businesses financing solutions in excess of $250,000.

Second, they know how critical cash flow is to small-business owners. In addition, they believe leasing arrangements can help smooth the bumps in a company's cash flow. A lease is similar to a loan: customers make lease payments at a fixed interest rate for two to five years. It is also possible to buy the equipment for a small amount at the end of the lease term.

Leasing has advantages over a loan in that it helps preserve cash and credit lines because companies can save their working capital for investment and inventory, which results in more cash for the business. In addition, the fixed nature of lease payments allows small-business owners to forecast cash flow, leading to better planning and budgeting. The average lease amount companies apply for with Wirth is around $25,000.

In some circumstances, Wirth franchisees will also provide small-business loans to companies that need this type of financing. The up-front costs can be a little as one lease payment and a nominal documentation fee. Unlike a loan, which usually requires a large down payment, these required up-front fees are smaller and are applied to the total lease payment. There is no application fee when customers apply for a lease.

Area developers may find this type of franchise an interesting business opportunity, says Mark Hooley, president of Wirth Business Credit. Many of our current franchisees are small-business owners. This would apply to area developers who may already be very active in the local business community, he says. These individuals can harness the business contacts they've already created with this concept. To date, Wirth has 11 signed franchisees across the U.S.

Franchisees with a business and/or sales background are seen as key to success of this franchise. Previous leasing experience is not required. Wirth has already attracted a group of high-quality franchisees who are eager to establish leasing arrangements with other businesses, says Hooley.

To make sure its franchisees are successful, Wirth offers an extensive one-week training session including leasing and financing basics, marketing and sales, hardware and software, and business planning. In addition, franchise owners are assigned a dedicated operations manager and receive ongoing support with national account leads, critical marketing materials, educational workshops, and national annual conferences.

Our training program is so strong that we can train a talented person to effectively utilize his skills in this particular business opportunity, Hooley says. Wirth prefers to have potential franchisees come to them with business talent, but a background in the leasing business is not required. For example, Wirth has one former CFO who is a franchisee in the Dallas area. In addition, Robert Perez, a small business owner, represents Wirth in San Diego. He is financing telephone systems, office equipment and furniture, computers, and specialized equipment for restaurants and contractors.

On the operations side, Wirth offers dedicated operations managers who provide help with the process of completing transactions for customers. In addition, the company's national account sales team works to build partnerships that can result in leads in a specific market area. This team secures relationships with large vendor organizations, such as forklift manufacturers and distributors, as well as with franchise operations such as Dairy Queen.

Winmark's management wants to grow Wirth on a measured basis because they are attempting to build a brand in a market that has really never had a brand, says Hooley. This will take time and requires the right franchise partners to do it. But make no mistake: Winmark and Wirth are deeply committed to this brand over the long term.

If we have a franchisee in the market area where there are Dairy Queen restaurants, for example, it makes a good match for Wirth and for Dairy Queen. The franchisee can approach the DQ franchisee as a preferred financing partner and can help the local Dairy Queen with its financing needs, says Hooley.

One of the big benefits of Wirth's operation is that franchisees are establishing a local presence. When our franchisees call potential vendor partners, they stress that they have a local presence and actually meet with their customers face to face, he says. This is unique because a lot of existing national leasing players do much of their work by phone.

The investment range for this franchise is from $47,000 to $70,000, which includes the initial franchise fee, computer and software costs, and marketing and advertising. For additional information, see www.wirthbusinesscredit.com.