Matching Talent with Capital
In a capital intensive franchise models, franchisor recruit franchisees - who are made up of two or more partners. One partner typically has the operating and development history, and the other partners provide equity financing.
This list explains what RFG is looking for when matching talent with capital, identifying and solving the development problem.
1. Access to Capital: Do they have access to capital to build out the development schedule for your new concept?
Many multi-unit operators look more profitable than they are. Their development schedule may have been drafted in a moment of enthusiasm. Their capital maybe entirely locked-up in their current brands. Don't automatically assume that a 40 unit operator has sufficient capital or access to capital to commit to your project. Don't fall into the trap of getting excited about signing up a large multi-unit operator for your brand, unless they show you the money.
2. Other Development Obligations: What are their development obligations, including remodel commitments, to their other concepts?
Just knowing that they have the money isn't enough. You need to know about their development obligations to their current brands. You have to pay to attention to their remodel commitments. Much of their capital may already be spoken for.
Can they build the stores and remodel the units that they are already committed to without exhausting their capital? Is the multi-unit operator meeting its current lender obligations and staying within their loan covenants?
3. Compliance with Schedule: Are they in compliance with the schedule in their current development agreement(s)?
The mulit-unit operator may have sufficient capital to expand your franchise system. But, are they dragging their feet in their current development agreement?
Development schedules can be slowed if operating revenue has been reduced. Beware of the multi-unit operator who uses a slow development tactic to extract territorial concessions from you mid-deal.
4. Compliance with Operations: Are they in operational compliance under their current franchise agreements?
Not all multi-unit operators are actually great operators - despite what they would claim! Don't be fooled by a multi-unit operator who is merely tolerated in the system because they own great locations or control the underlying real estate.
Check to make sure that they are exceeding the franchisor's standards.