Get Your Franchise Funded — Insights from The Franchise King

By |2017-09-14T11:21:29-07:00May 7th, 2012|

Recently, franchising, finance and policy leaders have come together to begin a dialogue to parlay credit access and create jobs. We wanted to catch up with someone dominating the franchise advising space to help keep us on our toes regarding what lies ahead in lending, job creation and economic recovery.

Before jetting off to speak at NYXPO, Joel Libava, most well-known as The Franchise King, sat down briefly to answer a few of our  primary questions. He’s just trying to “change the franchise world”. No big deal.

Helping franchisees access funding hasn’t always been a franchisor concern. Can you recall the reverberations when franchisers started focusing on loans?

There weren’t really, “reverberations,” as much as a, “What do we need to do to get people financed?” movement.

The best example of a franchisor focusing on lack of funding issues at the time was BrightStar Healthcare. Shelley Sun hired a person who’s only job was to work with potential franchisees from start to finish with their small business loans. BrightStar wasn’t the bank – far from it. Their way of dealing with the credit crunch was to make sure that qualified and interested potential franchisees had every option available to them loan-wise. But, things didn’t stop there. Their in-house loan expert made sure that nothing happened from the time a loan application was filled out to when that loan was going to be funded.

Amazingly, deals got done, and BrightStar gained lots of new franchisees.

Franchisors should never become lenders. It’s tough enough these days to find great franchisees, and keep them happy and profitable. They don’t need the added headaches that go along with being a lender – a bank.

What are your top three reasons why franchising is a top growth strategy for job creation?

Most people, when they’re looking into the idea of becoming franchise owners, don’t really think about the job creation aspect; but they should.

Franchise businesses are local businesses owned by local people. They bring needed revenue to their geographical areas, and if the business is one that requires employees, a franchise is an instant job creator.

I don’t really have a top three list for you here, but suffice to say, healthy local economy’s always have a few franchises in the mix, with plenty of employees included. It gets even better:

Let’s say that the franchisee has a very successful business, and wants to expand it by investing in another unit. This new unit brings with it more jobs. In a perfect world, the franchise continues to expand, and more jobs and more opportunities are created every time a new unit is added. Of course, this all depends on the area, it’s population and the success of the franchise. But, it can happen. And it does.

For investors, what kind of tips can you offer to make navigating the land of franchises less intimidating and puzzling?

The most important part of the franchise equation has less to do with selecting the right franchise than it does with knowing oneself. Anyone that’s thinking about going the franchise route needs to take some time to do some deep introspection. Potential franchise buyers should make sure that:

  1. They really want to be in business for themselves. It’s one thing to dream about owning a business. It’s quite another to put in 14-hour days and deal with hiring and firing. Then, there’s the money part. People lose money in franchises all the time. The franchise business model rocks when it’s done right. But, it’s not perfect, and neither are the humans behind all of the franchise brands.
  2. It’s crucial for would-be franchisees to have the right personal traits required for a rigid business model like franchising. There are lots of rules. (Including a 250- page operations manual that’s expected to be followed.) There is not a lot of wiggle-room. If one can follow a system, and is okay with that idea in the first place, franchise ownership could be the way to go.
  3. Buy in. Buying a franchise is a huge decision. There needs to be what I call, “Buy-in” from the family. If there’s a spouse, they need to be involved in the decision. If the spouse is dead-set against the idea, it’s going to be that much harder for a franchisee to remain upbeat during the start-up phase, in which money is scarce and the hours are never-ending.
  4. Fads. It’s way too easy to start looking into the latest craze – the hottest thing. I’m not going to start naming names or industries here, but I feel that it’s quite possible for franchise buyers to be sucked into the hype surrounding a popular franchise. Getting in at the beginning of something hot may be a good thing; it depends on how long it can last. But, getting in too late can be a nightmare. Just a little food for thought.
  5. Be choosy. Today’s franchise buyers have lots of information to sift through. (I’m not referring to the information that the franchise companies pass out.)

The amount of information on franchising that’s available online can easily overwhelm even the strongest humans. Franchise buyers shouldn’t believe all they read. But, they should probably believe some of it.

In other words, buyers need to get educated on franchising. Reading about the bad and the good is great. But, buyers need to be aware that there are websites dedicated to extreme franchise-bashing. (They’re usually run by angry ex-franchisees, or not very busy franchise attorneys.)

I’ve even been known to be a bit negative on franchising occasionally. That’s because I’ve seen the bad, and I’m focused on making sure that anyone I come in contact with that’s interested in franchising gets the straight scoop, and understands what it’s like to be an owner. So, I overcompensate I guess.

Thinking of starting your own franchise? Looking for access to capital? Questions about lowering risk in this arena? Please let us and Joel know in the comments below. Now if you’ll excuse us, we’re going to continue to ponder one of the greatest business models ever invented…