Candidates who want to buy your franchise are faced with many challenges in trying to complete the deal. None is more complicated and misunderstood than the financing. Here are some tips on how you can help make it happen.
Prevent Lender Red Tape: Register
Your deals face a number of hurdles--enough to keep you plenty busy. What you don't need is another common barrier: franchise disclosure document questions that arise during the lender's legal review. When you register your firm on franchiseregistry.com, you are listed as a franchisor legally financeable with SBA loan products. The registry makes no claim about the viability of your concept, or the success of your business model. Without a listing on the registry, lenders are left to closely examine your FDD, and they can nit-pick you to death, wasting precious time to complete the deal.
Set the Bar High
Raising (or lowering) the bar just might save the day. Most franchisors have some form of screening process to determine the candidate's viability. How often you review, change and update that criteria may be costing you. We've found that most franchisors establish this screening process in the initial stages of moving their franchise forward, but rarely revisit or adjust this level for changing market conditions or lender policies. With SBA law updates and markets changing from month-to-month, we always suggest that a franchisor review its minimum approval criteria to allow for the largest chance of success by new candidates. Small changes like "after-funding liquidity," for example, could be the difference between a successful unit or a struggling one. The national average for a franchise start-up to achieve profitability is four to six months, but do those averages apply to your concept? You probably have that answer revealed in your royalty reports. After reviewing 20, 30, even 50 new units, you can determine if the actual time frame should be lengthened or shortened to meet your franchisee's needs. It's not hard to calculate with the facts in front of you, but not many franchisors take this extra step and update the actual working capital requirements in their screening process. You may want to revisit other items also such as minimum credit scores, resumes or even go so far as personality-style analysis to determine strengths and weaknesses on candidates prior to approval.
Franchisee: Don't Quit Your Day Job
Never encourage a candidate to make any major...