Uncommon Currency
You really, really want a franchise. But you just don't have the money to buy one. Where can you turn? We hear franchisors have some tricks up their sleeves.
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Stanley Wong enjoyed taking his family to the International
House of Pancakes. So when he began pondering his business future,
Wong wondered whether the family restaurant chain could provide the
opportunity he was looking for.
The bad news: At the time, Wong was a 28-year-old self-employed
grocer without any substantial savings, so the possibility of
buying a franchise seemed pretty hopeless. The good news: IHOP had
put together a special financing program for its franchisees, which
included building and equipping the restaurant, then leasing the
restaurant and equipment to the franchisee.
"Everybody comes to America with a dream of being a
success," says Wong. But that American Dream comes with a
price. For those who may equate success with buying a franchise,
the start-up costs and franchise fees can be prohibitive. But a
growing number of franchises are offering innovative financing
programs that help their prospective franchisees' dreams become
reality.
For example, when Wong opened the first IHOP franchise in San
Francisco in 1967, the franchise fee was $40,000. It wasn't a
problem that he had only $10,000 to invest--IHOP's finance
program allowed him to finance the rest of the fee over an
eight-year period. "That really helped us out," says
Wong, "because we didn't have a lot of money and were
finding it very difficult to get financing [elsewhere]."
Today IHOP finances 80 percent of the franchisee's franchise
fee as well as 100 percent of the leases on the building and
equipment. The goal? To give more people the opportunity to own a
business. "We're looking for people who are willing to
work hard and are capable of being a good restaurant
operator," says Alan Unger, the franchise's CFO.
"We're not looking for people with previous significant
restaurant success who can afford to build, develop and finance
restaurants on their own."
Wong certainly fit that bill. With financial backing from his
franchisor and after the success of his first IHOP, he eventually
opened 22 more restaurants in California, Idaho and Utah.
Though Wong's balance sheet is certainly more impressive
today than it was 30 years ago, and he now has the capability of
being funded by any number of lenders, he continues to get his
financing through IHOP. "I've had more of a relationship
with them over the years," Wong explains. "They have
integrity--that's one of the big reasons why I'm still with
IHOP."
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Like IHOP, Fastframe is seeking experience rather than financial
strength in its prospective franchisees. This franchise differs,
however, in that it gives its corporate and franchise employees the
ability to work toward, rather than invest in, a store of their
own. With a goal of keeping talented framers and designers in its
system, Fastframe instituted its managing partner program in 1998,
allowing corporate and franchise employees to earn shares in their
stores.
The program is based on "the fact that there are a lot of
good people in this industry, both designers and framers, and quite
honestly there's not a great career ladder for them,"
explains Brian J. Harper, Fastframe's president and CEO.
"We want to give them a [true] career opportunity."
Greg Fournier was an ideal candidate. Working as an employee of
an Orange, California, Fastframe store for six years, Fournier
became increasingly frustrated as his employer seemed to lose
interest in the business. "I saw the potential of this store .
. . and the lack of what [my boss] put into it. Everything I tried
to do wasn't enough, because I wasn't the
decision-maker," says Fournier, 30.
Fournier explained his situation to Fastframe, which informed
him about the managing partner program. He put in a small sum of
money to buy the store, and the franchise put up the rest. Fournier
was given certain sales goals that, when achieved, would earn him
an additional percentage of the business. He's currently earned
40 percent of the business from Fastframe and has become managing
partner of a second store in Yorba Linda, California.
Without the managing partner program, Fournier is unsure where
he'd be today. He agrees with Harper's sentiments, though,
that he probably would have quit working at Fastframe. "I
might have moved to a larger company where I could have overseen
more people, but I wouldn't have been happy. I always wanted to
own my own [business]," he says. "That's why this is
such a great program. It's ideal if you lack the funds to [buy
a franchise], but you have the knowledge and the ambition to do
it."
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When Allied Domecq QSR-the franchisor of Baskin-Robbins,
Dunkin' Donuts and Togo's-created its financing program,
the company was more interested in making the financing process
easier for all franchisees than in targeting a specific group. The
company selected three lenders from a group it had informal
relationships with and created a preferred lender program. Through
the program, the three preferred lenders-New York City-based CIT
Group Inc., Washington, DC-based National Cooperative Bank, and
Danbury, Connecticut-based QuesTech Financial LLC-have a shorter,
customized loan application for Allied Domecq franchisees.
"Based on our experience and feedback from our franchisees,
we thought by focusing on a select few preferred lenders who wanted
our brands to be a core focus of their business, we could provide a
more consistent source of funds, a higher level of customer service
and competitive interest rates," explains Adrien Deberghes,
assistant treasurer for the franchisor.
Carlos Teixeira is one franchisee of Allied Domecq who has
benefited from the preferred lender program. A franchisee since
1986, Teixeira owns eight Dunkin' Donuts franchises in New
York. "[The preferred lender program] specifically benefited
me, because QuesTech's offering was tailored [to Dunkin'
Donuts]. They knew and understood the business," the
45-year-old franchisee says.
Such programs have opened doors for franchisees who otherwise
may not have been able to afford a franchise or qualify for
financing. But as with most franchisors offering financing
programs, Allied Domecq isn't content to gloat over prior
accomplishments-they're always interested in improving their
offering. "Considering how dynamic the industry and the
capital markets are, we're constantly looking at whether [the
program] is as effective as it can be," Deberghes says.
"We're happy with what it's doing now, but it can
always be better."
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