We’ve all heard that securing funding is often one of the biggest challenges for franchise candidates, but how exactly does it impact you, the franchisor? Here's some food for thought: Have you ever lost a candidate due to lack of funding? If a candidate is deciding between two franchises and one of them offers financing options, is he/she more likely to choose the one that offers help with financing? Do you have any single-unit operators who might be interested in becoming multi-unit operators, but are hesitant to pursue it because of perceived financing challenges? How do you ensure your candidates don’t start out underfunded? All of these scenarios have the potential to impact you as a franchisor.
After working with hundreds of franchise brands over the past 30 years, we’ve discovered the top THREE mistakes franchisors make with their candidates in regards to funding:
- Leaving Funding up to Your Candidates.
How many times have you heard a candidate say they were turned down for a loan by one or more banks, then they gave up? Allowing candidates to come up with their own funding can slow down the process, or worse, cause it to fall through altogether.
It’s often said: “There’s a reason all car manufacturers offer financing…because it helps them sell more cars!” The ability to advertise “Funding Available” is a powerful phrase that adds credibility to your brand and drives growth.
It’s a win-win situation for both the franchisor and franchisee when funding options are made more accessible. The franchisor is able to grow more quickly, while the franchisee is able to get up and running (and start living their dream) sooner. Just make sure you choose a partner who has the experience and expertise, as well as a variety of options to design a customized funding strategy specifically for your concept and your candidate.
- Not Considering a Multi-unit Strategy from the Start.
How easy is it for your candidates to secure financing for multi-unit deals? We are always amazed and thrilled when we’re working with a candidate and discover they really want to pursue multi-units, but thought funding was out of reach or didn’t know how to go about it. There are many different strategies for pursuing multi-unit funding – and finding a partner that has the expertise in this area gives you a competitive advantage.
While every entrepreneur’s needs and situation are different, one thing is universal; how an entrepreneur funds the first unit affects their ability to fund the future units. In other words, if the candidate arranges financing for the first unit without considering how it is going to affect their ability to get additional financing, they may find themselves without any options to fund the second and third units.
- Having the Candidate Start Out Underfunded.
One of the leading causes of franchise failure is undercapitalization or insufficient funding. Most new business owners need more working capital than they anticipate, so making sure they have enough of a buffer to help with any unexpected operating costs is critical.
When it comes to helping your candidates, don't just focus on helping them get the funding to open their doors. Instead, it's more important to ensure they are funded the right way in order to set them up for future success. Using a business calculator can help figure out a budget for the one time and ongoing costs required to run a business.
As franchisors continue to look for ways to grow in a highly competitive industry, finding a trusted partner is essential if you want to avoid these top mistakes and supercharge your franchise system's growth.