How to finance your franchise

Today the Augusta Free Press ran a story on how to finance your franchise.

You can find the story at this link on the AFP website. I’ve also summarized their take on franchise financing here:

When you need financing, royalty fees, working capital, and inventory, you have options.

First, though, you have to get your records and personal finances in order.

How is your credit score? You also need a business plan.

In many cases, franchisors offer franchise financing. They typically can assist with 15% to 75% of what you need.

Other options include banks, friends, family, investors, and others.

There are many other options and tips to consider when it comes to franchise financing.

U.S. Small Business Administration

One source of help to refer to is the U.S. Small Business AdministrationSince its founding on July 30, 1953, the U.S. Small Business Administration has delivered millions of loans, loan guarantees, contracts, counseling sessions and other forms of assistance to small businesses. An SBA loan may be one option for franchise financing.

SBA provides assistance primarily through its four programmatic functions:

Access to Capital (Business Financing, including franchise financing)
Entrepreneurial Development (Education, Information, Technical Assistance & Training)
Government Contracting (Federal Procurement)
Advocacy (Voice for Small Business)
Wikipedia notes that “The Small Business Administration is a United States government agency that provides support to entrepreneurs and small businesses. The mission of the Small Business Administration is “to maintain and strengthen the nation’s economy by enabling the establishment and viability of small businesses and by assisting in the economic recovery of communities after disasters”. The agency’s activities are summarized as the “3 Cs” of capital, contracts and counseling.”
In this case, “capital” may include options for franchise financing.
Contact your SBA regional office for more information.

Small Business Development Centers

Another valuable source of help is your local Small Business Development Center office.

Check with your local SBDC for free face-to-face business consulting and at-cost training, on topics including business planning, accessing capital (including franchise financing), marketing, regulatory compliance, technology development, international trade and much more.

SBDCs are hosted by leading universities, colleges, state economic development agencies and private sector partners, and funded in part by the United States Congress through a partnership with the U.S. Small Business Administration.

There are nearly 1,000 local centers available to provide no-cost business consulting and low-cost training to new and existing businesses.

Keep Reading

Educational Video #7 – Home-Based vs. Brick-and-Mortar Franchises

Key Differences Between Home-Based and Brick-and-Mortar Franchise Options

The latest, Part 7, in my franchise matchmaker educational video series on the franchise industry, Home-Based vs. a Brick-and-Mortar Franchise, can be found at this link: https://www.youtube.com/watch?v=SmLiCMcW8mA&t=5s

 

Kim Marinoff, franchise matchmaker, discusses franchise options
Kim Marinoff discusses key differences between home-based and brick-and-mortar franchise options

 

Here, in just over three minutes, I cover key differences between them. One of these franchise options may be right for you. You may choose one based on your personal strengths or preferences. It’s best to match your needs and interests with the right franchise opportunity for you, and this is one piece of that.

With a brick-and-mortar franchise option, you have a physical location where you will serve customers. Home-based opportunities tend to offer online services, or services where you go to meet clients at their homes or some other location.

It typically requires more initial investment and more ongoing overhead to start and run a brick-and-mortar location. But by having that physical location, placed correctly, you will get incidental traffic as visitors in the area for other reasons see and visit your outlet. The biggest risk is signing a lease.

Being in a store, behind the counter, is often more comfortable for people who don’t have strong sales skills or experience. This way, they can market their location broadly to bring people into the store. You also have the option of hiring a manager with strong customer service skills to operate the store for you, or to relieve you when you need to be away.

Home-based franchise options take less money to start, have less overhead, and less risk. There’s typically no need for inventory, cost of goods and other fixed costs. It usually takes fewer employees and provides flexibility, if you have the discipline to stick to a schedule. You can’t hang a sign on your house and have typically hours where you are open. You will need to network, get involved in local groups like chambers of commerce, and you will get support from your corporate organization to help find you leads and customers.

I hope you find it useful; that you enjoy the other educational videos to come; and that you have already seen the prior videos in the series, or you will take a look and share your thoughts with me.

Considering a franchise? Call me, Kim Marinoff, the franchise matchmaker, today!

Thank you!

Smiles,

Kim Marinoff

Keep Reading

Educational Video #5 – Franchise Disclosure Documents (FDDs)

My latest video is on “Understanding a Franchise Disclosure Document (FDD).”

What’s a Franchise Disclose Document? Learn more here, in just over three minutes.

View this video on YouTube. Find my YouTube channel with this and other important franchise-related videos here.

Kim Marinoff presents “Understanding a Franchise Disclosure Document (FDD),” including key areas to pay attention to.

Franchising in the U.S. is governed by FTC, or Federal Trade Commission.

The Federal Trade Commission oversees franchising in the U.S.
The FTC governs franchising and dictates the contents of the FDD (this website/business is not affiliated with the FTC)

Every franchisor must give every prospect a franchise disclosure document, which mirrors the franchise agreement and provides detailed information on many different areas of the franchise, its costs, and how it operates. The FDD has 23 templated sections, and each franchisor populates those templates with their own information.

A completed FDD can be as long as 200 or even 300 pages. At the end, you should find the actual franchise agreement. It’s important, as a prospective franchisee, that you understand the entire franchise disclosure document in its entirety.

Some particularly important sections of the FDD include:

Item 6: Which lists all ongoing costs/expenses to operate a franchise. That can include royalties, advertising costs, software, and more.

Item 7: Details all of the expected costs to get a franchise location open. It provides a range, with a low and high end, itemized.

Item 12: Here, the franchisor shares how it defines territory. That territory should be exclusive. They should also share details on how they define territories (for example, by populations), and what demographics they have considered in each territory to make that territory not just viable but valuable.

Item 19:  You will find financial information here, including the franchisor’s earnings claims. What kind of performance numbers are existing units reporting, what they are producing, and how are they doing that. Some FDDs don’t populate this section. That might be because the franchise is a startup, or they want you to be in touch directly with franchisees, and getting numbers from them.

Item 20: This section gives details on franchise outlets that have opened, terminated, and ceased ops. You will find information here on every franchisee, along with their contact information.

The FTC Advises:

“Before you invest in any franchise, get a copy of the franchisor’s Franchise Disclosure Document (FDD). Under the Franchise Rule enforced by the FTC, you must receive the document at least 14 days before you are asked to sign any contract or pay any money to the franchisor or an affiliate of the franchisor. You have the right to ask for — and get — a copy of the FDD once the franchisor has received your application and agreed to consider it. Indeed, you may want to get a copy of the franchisor’s FDD before you spend any money to investigate the franchise offering. The franchisor may give you a copy of its FDD on paper, via email, through a web page or on a disc. The cover of the FDD must provide information about the available formats. Make sure you have a copy of the FDD in a format that is convenient for you, and keep a copy for reference.

Read each of the 23 numbered “Items” in the franchise disclosure document. Don’t be shy about asking for explanations, clarifications and answers to your questions before you invest.”

Here’s a link to the FTC’s page “A Consumer’s Guide to Buying a Franchise,” with detailed information on the franchise disclosure document.

They also have a useful PDF version here.

The complete franchise disclosure document includes these sections:

Franchisor’s Background (FDD Item 1)
Business Background (FDD Item 2)
Litigation History (FDD Item 3)
Bankruptcy (FDD Item 4)
Initial and Ongoing Costs (FDD Items 5-7)
Supplier, Territory and Customer Restrictions (FDD Items 8 and 12)
Franchisor’s Advertising and Training (FDD Item 11)
Renewal, Termination, Transfer and Dispute Resolution (FDD Item 17)
Financial Performance Representations (FDD Item 19)
Franchisee and Franchise System Information (FDD Item 20)
Financial Statements (FDD Item 21)

Keep Reading

Educational Video #3 – Questions to Ask a Existing Franchisees

What should you ask an existing franchisee?

This is Part 3 of my 11-part series of educational videos to teach you all about the franchise industry, and about working with a franchise consultant.

In just under four minutes, learn about the questions you mush ask existing franchisees when you are vetting a franchise opportunity.

Franchise education video 3 of 11, “Questions to Ask Existing Franchisees,” by Kim Marinoff.

Talking to existing franchisees is a critical step in the process of evaluating a franchise opportunity. I’ve honed my list of questions over the years, and they include some that you may not have thought of.

It’s important to understand the background of any franchisee you speak to. What was their background? What led them to this experience? What skills did they have, and how do their skills and experience compare to yours? Can the franchise training program help you fill in any gaps? Why did they chose this opportunity? Why did they pass on others?

Ensure you know about the training and support available to you. What is the biggest mistake they made and how can you learn from and avoid that?

How do you market your business? What are the biggest obstacles to success? What are their sales? What are expenses? What was ramp-up time? When did the business first break even? Did they hire a manager? Would you do this over again? Why or why not?Talking to existing franchisees is a critical step in the process of evaluating a franchise opportunity. I’ve honed my list of questions over the years, and they include some that you may not have thought of.

It’s important to understand the background of any franchisee you speak to. What was their background? What led them to this experience? What skills did they have, and how do their skills and experience compare to yours? Can the franchise training program help you fill in any gaps? Why did they chose this opportunity? Why did they pass on others?

Ensure you know about the training and support available to you. What is the biggest mistake they made and how can you learn from and avoid that?

How do you market your business? What are the biggest obstacles to success? What are their sales? What are expenses? What was ramp-up time? When did the business first break even? Did they hire a manager? Would you do this over again? Why or why not?

Get my complete list of Validation Questions to Ask Franchise Owners” at this link, as a PDF.

If you have questions, please comment here, or send them to me via email at kim <at> a2bfranchiseconsulting.com.

Learn more about me and my services, find valuable resources about franchising on this website, and check back here on my All About Franchising blog as I introduce the other eight videos in my educational series.

I’ll also be posting news here about my clients, news from the franchise world, address other industry topics, and I always welcome your comments and questions.

Thank you!

Smiles,

Kim Marinoff

Keep Reading

Educational Video #2 – Questions to Ask a Franchisor

Here are the important questions you must ask when evaluating a franchise.

Franchise education video 2 of 11, Questions to Ask a Franchisor, by Kim Marinoff.

This is Part 2, “Questions to Ask a Franchisor,” of my 11-video series on franchising. This series is designed to help you learn more about the franchise industry, and about every phase of working with a franchise consultant to select a franchise.

In three minutes, I lay out the questions you must ask a franchisor. This is a comprehensive list of questions I’ve developed over the years. I have made them available here on my website on my resources page.

Gather all the information you can and ask all the questions you can about corporate communciations, support, training, operations, marketing, the financial model, red flags in the franchise agreement, and the competition. How do they differentiate themselves? What territory are they selling? Is it exclusive? How is it defined?

What is the corporate culture? Competitive? Collaborative? Controlling? Creative?

What sort of capital do you need to have to open and operate?

I hope you enjoy the video and find my “Questions to Ask the Franchisor” resource useful. It will open or download as a Microsoft Word document.

Does it raise any questions for you? Send them to me (kim <at> a2bfranchiseconsulting.com) or comment here. I look forward to hearing from you.

Learn more about me and my services, find valuable resources about franchising on this website, and check back here on my All About Franchising blog as I introduce the other nine videos in my educational series.

I’ll also be posting news here about my clients, news from the franchise world, address other industry topics, and I always welcome your comments and questions.

Thank you!

Smiles,

Kim Marinoff

Keep Reading