For franchisees, getting their business off the ground is one of the, if not the greatest challenge of their careers. From meeting the franchisor’s scale and experience requirements to securing financing, the journey to becoming a franchisee is often a long and winding road.
But what are franchisees to do when they’ve met the challenge, started a successful business, and are considering what the next steps are for growth?
First, franchisees should consider their short and long-term goals. Ask yourself questions such as:
- “Am I looking to build my business to make it attractive to sell in the next 5-10 years?”
- “Do I prefer to have the flexibility to pursue multiple endeavors in my community?”
- “Am I looking to build my business into a multi-unit or even a multi-brand entity?”
These and many other options present the opportunity to build personal and generational wealth for a franchise owner, and while every goal has its own merits, your approach to growth can be similar in many ways.
Here are a few considerations for funding your franchise’s growth.
Determine Your Goals
The first step in building your franchise business into an empire is simpler than you may think.
My advice is to “know thyself.”
After having some time as a business owner under your belt, thoughts about the future are inevitable. You may find that you love franchising and want to expand your current operations to a multi-unit model, or you may be happy with where your franchise is positioned in the marketplace and prefer to drive internal growth and free up time and resources for other ventures, such as philanthropy in your community.
In other cases, franchisees choose to scratch their itch to expand into franchising in other industries, diversifying their income.
Whichever avenue you pursue, your personal and professional goals will help shape financial approaches to growth.
Improve Your Access to Capital
Raising growth capital can be a challenge for franchisees.
The key is to build your current franchise’s profitability, so you have a good amount of cash flow and liquidity in your business. Start with reinvesting into your existing business, such as using cash management and forecasting tools and services to help accelerate internal growth before you look to outside capital sources.
Depending on your goals, the next step is to consider loans that are available for uses such as expansion, equipment financing, working capital needs, real estate transactions, and even buying additional franchises. Talk to your lender, accountant, and franchisor to explore these opportunities, as there is no one-size-fits-all approach to take – your unique goals and financials will drive the conversations and help mold your growth strategy. It is essential to have a profitable net operating income on your business tax returns. The net operating income should provide adequate debt service coverage for the proposed funding request.
Having built up net discretionary income as a secondary source to repay a loan also makes you a more attractive borrower for SBA-backed loans and traditional small business loans alike.
Make sure you are leaning on partners you trust to guide you through this critical step. Not every bank specializes in franchise lending.
Keep “Your Empire” in Sight
The day-to-day grind of operating a franchise business can make the long view hard to envision at times. Continually revisit your plan, determine if you are on track to meet your goals, and adjust as needed along the way. Remember, the franchisor has already created benchmarks to indicate when the franchisee is prepared for multi-unit growth. Request mentorship from top franchisee performers within your brand and utilize some of their best practices to accelerate the development of your operations.
As you grow as a business leader and employer in the community, your vision of what your empire looks like may also change. Don’t be afraid to pivot and embrace change.
It’s that entrepreneurial spirit and nimbleness that drove you to franchising in the first place.
Helping you boost your financial intelligence.
Read our financial resources from your friends at WSFS.