The franchising revival
Being ‘bank ready' - attaining and retaining accreditation with a bank - is a significant challenge for most franchise systems and organisations looking to franchise. Yet the benefits of accreditation are extremely worthwhile, especially in the current environment.
Activity in the franchise industry has exploded in recent months as many organisations look to franchising as a viable business development option. And the forecast for 2011 is bullish. According to the 2010 Franchisor Expansion Study conducted by 10 Thousand Feet (a strategic marketing intelligence company), 70% of franchisors intend to recruit more franchisees in 2011 as their optimism returns to pre-GFC levels. This outlook correlates with the results of the WHK SME Pulse Survey (Pulse Survey) conducted in August 2010, where the majority of SMEs surveyed had a positive outlook for the economy and 67% believed the Australian economy will continue to grow without too much impact from the global economy.
And it seems SMEs still have an appetite for borrowing. The results of the November 2010 Pulse Survey indicated that SMEs have not been deterred by rate rises and tighter lending by banks.
Even with this upbeat view, franchisors face a number of challenges, including the ability to capitalise and expand on the demand shown by potential franchisees, to recruit the right people and gain access to funding.
How can being ‘bank ready' help?
Accreditation assists franchisors' plans for growth by attracting franchisees. It also enables franchisors to capitalise on the current boom in franchising.
Where a franchise system is accredited by a bank, the accreditation enables lending to franchisees through a consistent model. The risk associated with borrowing is spread between the different franchised sites rather than the franchisor as one entity - a major benefit to the franchisor.
As each bank has their own criteria and process for accreditation, it's essential that a franchise system has a clear strategy, a sustainable business plan and creditable financial projections.
Successful accreditation also relies heavily on the strength and history of the brand; efficient and well documented systems; the depth, quality and experience of management; adequate capitalisation, profitability, return on capital, and cash flow to service debt.
The accreditation process is an education process for both the bank, which gains a greater understanding of the strategy and organisational operations, and for the franchisor / franchisee to plan and better understand good financial management, including inventory, cash flow, budgeting and credit risk management.
The better prepared a franchise system is, the better its chance of gaining and maintaining bank accreditation. A good working relationship with the bank, based upon the flow of reliable financial information, will assist the franchise system, and its franchisees, to achieve strong growth and profitability.
Help through the accreditation process
The WHK Retail and Franchise Team works with franchise systems and their franchisees to ensure they are ‘bank ready'. We can help you by guiding you through the accreditation process and by developing and maintaining your financial reporting system. This is crucial to provide key information to the franchisor, franchisee and the bank. When everyone is fully informed, good business decisions can be made and ‘surprises' are kept to a minimum.
WHK's experience, expertise, proprietary analysis and assessment tools to provide support and advice to retail and franchise businesses. Typically, we identify areas of strength and weakness; identify, measure and benchmark key performance drivers; assess capacity and funding requirements for growth; and identify problem areas.
Natalie Forte
Senior Manager, Business Advisory
natalie.forte@whk.com.au