1851 Franchise Magazine connects with Brian Frank, Senior Vice President, Group Head Franchise Finance for a deeper look on franchise financing.
One of the first things a franchisor or franchisee has to think about before jumping into the entrepreneurial world of franchising is financing. Having the funding for your business is the single most important thing to keep it afloat, so the financing behind the business must have a solid structure to avoid any hiccups. To get a deeper look on how both franchisors and franchisees can best finance their businesses, whether setting up for an initial sale or resale, 1851 Franchise Magazine connected with Brian Frank, Texas Capital Bank’s senior vice president and group head of franchise finance for expert insight.
Dallas-based Texas Capital Bank has specialized in commercial and private banking since 1998. The bank’s client base consists of privately-held mid-sized business and their owners, independent mortgage companies, home builders and commercial real estate developers. The bank has a specialized focus in the franchising sector, and Frank specifically has years of experience working with franchisees and franchisors during their financing process.
“We work with franchisees and franchisors and discuss with them what exactly they are trying to accomplish,” said Frank. “We talk to each client about their needs and figure out what the right mix of debt and equity is for their particular situation. There is no cookie cutter solution, it’s more of an art than it is a science. We work with each individual operator and help them reach their end goal.”
The world of financing is different for a franchisor and a franchisee. So, starting with franchisors – how can they best set themselves up for a sale?
“Make sure the concept is replicable. Having a franchisee run a location is far different than bringing on new people to run your already successful store,” said Frank. “Everything must be methodical so you can hand it over and have the franchisee run it on their own through the playbook that you created. I think it’s incumbent for franchisors to talk to contacts in the industry who have gone through a sale and go to financial institutions to guide them on how best to get ready for a sale. Find counsel with investment banks that focus specifically on the franchisor space.”
Now, when we look at this sale process through the lens of a franchisee, the game changes a bit.
“The franchisor must be on board with a franchisee selling their location, and then the buyer that takes over the location,” explains Frank. “We typically suggest that franchisees talk to other franchisees in the system that want to expand, and to explore a transaction that way. With this route, you are keeping the location with a franchisee that is already familiar with the operations. Work with accountants, bankers and lawyers that have experience with these types of transactions.”
Moving forward, Frank predicts a certain trend in the franchising industry where all of these tips will come into play, in a big way.
“I think you are going to continue to see franchisee to franchisee sales. There is a first generation of franchisees that have been doing this for a long time and there’s an opportunity to sell,” said Frank. “As interest rates rise – what does this implication mean? The labor market is tight and there’s higher pressure on minimum wage. As franchisees are forced to better manage costs, financing is going to become an even bigger focus moving forward.”