Franchise businesses provide a great investment opportunity for entrepreneurs. Since they are complete operations in and of themselves, they come with training in processes and management procedures that have already been tried and proven. They also come with support for marketing and a built-in audience. Of course, there are trade-offs. Buying into a franchise requires a large cash investment up front, as well as working capital for the facilities, labor, supply purchases, and more. Franchise financing must be an important part of any plan to invest in businesses in this model for most investors to be successful.
When looking for financing for franchise companies, it can be difficult to know your options. Traditional business loans are not always available, because they often require companies to have established operating histories. It might be possible to use the Small Business Administration to finance equipment and facilities purchases on their own, but that still leaves investors with an obligation to cover up-front labor costs, supplies, and the license fee itself.
Credit lines might also be helpful with some of these items. While their interest rates are a little higher than traditional business loans most of the time, they can give you working capital when you need franchise financing. They aren’t tied to a particular purpose like equipment loans, and they can be reused when they are paid off, so you don’t have to reapply every time you need working capital. You might not be able to get enough from credit lines alone to make up the cash gap between your starting costs and your investment, though.
Luckily, there are programs designed just for franchise operators. These specialized loans often hinge on the company’s whole range of assets, including the finance license. They tend to be long-term like traditional business loans, and they also enjoy interest rates that are competitive with secured loans, so they tend to be less expensive to use than credit lines would be.
Franchise financing can take a variety of forms, but the most useful to new owners will be the simplest and most accessible. If it’s possible, always look for a program that provides you with working capital you can use to any purpose as you fund your operation. That way, you can enjoy a consolidated loan overhead that’s easy to pay. And if you’re not sure, book an appointment with a SilverLink Funding Business Finance Manager, who can teach you about specific terms for your business. It’s a lot cheaper month to month if you’re financing your startup on a 25 year loan than a 10 year one, and you can always pay it off early if your operation takes off.
Franchise ownership is a great opportunity for everyone involved in the investment. It’s even better if you can be the franchise owner, licensing out rights to own individual locations to other investors. Before you launch your franchise brand and begin seeking investors to open locations, there are a few key preparatory steps to take. That way, you will be ready to support licensees who buy in to your chain.
The first thing to do is to set up an accounting standard. This makes sure all the locations you personally open are running consistently. It also makes it easy for you to train new entrepreneurs who have not run a business before, and when you audit your licensees for quality control purposes, it makes your job easier. Along with that, you’ll want to start a resource center. Franchise ownership is about ensuring the success of each person who buys a license, because they are representatives of your brand to new audiences. A digital resource center with all the important management standards and practices, as well as updated advice to cope with the changing business environment, is a great way to do this.
It’s also important to remember that starting a franchise is a lot of work. Most of your locations might be run by franchisees, but you need to be involved in quality control, vetting new investors, inventing new marketing strategies, and improving supply lines. All that work only happens with hands-on owners, so if you’re looking for a business opportunity that will let you make easy money on your investment with a minimum of effort, it’s time to move on.
Once you’re ready to help franchisees get started, you also need to make sure you’re in compliance with all state and federal laws. SilverLink Funding’s Business Finance Managers are experts in this field, and can provide additional information when you sign up for one of our franchise financing appointments. If you plan on allowing licensees from other states to buy in, you’ll also need legal advice that helps you ensure you are in compliance in the new territory before you move in. If all that sounds like more work than you planned on when you first got the idea to start a franchise, then you should consider the alternatives. There are other ways to structure a chain business and make it grow, and with a more linear hierarchy, it’s easier to hire management and delegate authority downward. Franchise ownership requires you to be much more hands-on with recruitment and growth for the entire brand, not just the locations you own.
Owning a franchise can feel like the best of both worlds: you get to own your own business, but you also receive plenty of direction from corporate headquarters so that you don't feel like a fish out of water as you start your journey. Of course, successful operation of any type of business requires strong leadership. Are you as effective as you could be?
Have a Clear Vision and Strong Model
The first rule for any leader is to be clear in your own vision and understand your own strengths. Before you ever open your business, it is important to have a strong leadership vision. What kind of business do you hope to run? What will you expect of employees? How can you take action to ensure you achieve these goals? Even more important, which type of action will work best for you? Some people learn well from behind a desk while others need a hands-on experience, and the same can be said for trainers. If you work better behind a desk, have someone on hand who can provide hands-on training. If you prefer to be out in the field, ensure you have a right-hand man who can keep things going behind the scenes.
Ask for Help When You Need It
Not everybody is a born leader, but that doesn't mean you can't learn to be an excellent one. If you aren't sure how to lead when operating a franchise, ask for help. This could be in the form of a mentor whom you know has great leadership skills or by using alternative resources, such as seminars or ongoing education that providing training and development for franchise owners who aren't used to being in a leadership position.
Asking for help can save your business. Knowing when to ask for it can also make the difference. One of our franchise clients, Rose M. was looking for a way to revitalize her Color Me Mine franchise and take it to new level of profitability. She knew she that in order to bring in new business, she was going to have to remodel the studio. The problem was, Rose didn't have enough cash on hand to make it happen. So she contacted SilverLink Funding and within a few days we were able to secure her both the lender and the proposed funds. Now Rose's business is thriving and she is seeing more business than ever.
Ensure You Have a Quality Team of Employees
Leadership doesn't mean much if you don't have a quality team to work with. While it can be one of the more difficult parts of owning a business, you are solely responsible for ensuring your employees are measuring up. Unfortunately, this sometimes means removing team members altogether. Other times, you may find that reassigning someone to a different part of the operation does wonders for his or her efficiency. No matter what, don't be afraid to take the reins when creating a team that works efficiently.
Take Advantage of Technology
There is technology for everything these days, and leadership is no different. Tools that monitor your key performance indicators will help you learn where you can improve, where you're doing well and what your team hopes to learn from you.
Whether you own one franchise, or you are the person responsible for bringing on new franchisees, leadership is essential for any successful business. Remember, improving your own skills will help those you work with to become better employees and partners as well.