The tightening of capital markets in recent years has engendered significant changes in the traditional franchise sales process where funding was discussed as the last step. The almost complete disappearance of investment capital for small businesses has resulted in a severe decline of franchise sales for many franchisors. Only those franchisors that responded to new economic conditions with a different approach have kept franchise sales going strong. One of the biggest changes in the franchise sales process revolves around funding.
In order to sell franchises, franchisors have been forced to become more hands on about sourcing funds for their franchise candidates. The traditional broad list of preferred lenders no longer does the job. New relationships and strategies have to be forged to assist candidates through the current financing hurdles; and thus, while in the past funding conversations and education took the back burner, today they must be at the forefront.
More than ever before it’s critical to know as early as possible whether or not a candidate is fundable. This has always been a concern to some extent since franchisors don’t want to waste their time, but when the criteria for lending were changed prospective franchisees lost confidence. Fear of not having access to capital places franchise candidates in a holding pattern forcing franchisors to find ways to restore the level of confidence to keep the process moving forward. The traditional initial financial qualifications are no longer sufficient. Today franchisors and franchise candidates need to know with a greater level of certainty whether or not the latter will have the capital needed to fund the investment.
Proactive franchisors are either hiring funding strategy specialists or aligning themselves with partners to assist them with the current credit access issues. The role of these experts is to put together innovative financing packages for franchise candidates as well as to educate them about their options. Retirement funds have become a key component of these packages, but are not by any means the only source. The nature of the investment is dictated by the franchise business model and together help define the structure of the package. Only professionals with financial expertise are adept at finding ways to structure these packages according to the investment requirements and the candidates’ financial strength.
By engaging in the funding conversation early on in the franchise sales process, franchisors create a new level of confidence in candidates. Having hope restored keeps franchise candidates motivated and moving forward and franchise sales going strong in spite of the current economic conditions.
