Many multi-unit franchisees are constantly looking ahead to expand and open new locations. What are some of the best financial strategies to do that, especially during challenging economic times? Franchise Update asked several multi-unit restaurant owners about the financing they plan to use to expand their business next year. Their answers included a shared approach, with a caveat about the unpredictable financial climate impacting how they will move forward.
The most common response was financing through private earnings, at least in the short term. They said it is also important to have relationships with local banks in these situations. Franchisees can get assistance with financing options and help with acquiring SBA loans.
In Multi-Unit Franchisee magazine, we similarly asked other restaurant operators about their experience with private equity, local banks, and national banks. These large multi-unit owners provided interesting insight into how they worked with one or more of these sources. They echoed the importance of developing relationships with various banks and shared some of the benefits of working with each. See the Franchisee Bytes section below for advice and recommendations from several multi-unit restaurant franchisees about how they have funded the expansion of their business.
Rey Vasquez
Company: Vasquez Hospitality
Brands: 25 Golden Corrals
Years in Franchising: 13
We have primarily funded our growth through retained earnings, and that will remain our main strategy for future expansion and remodels. Next year, we are planning to open three additional locations. Depending on how interest rates trend, we may also explore bank financing, which aligns well with a brand as strong as Golden Corral.
Andrew Jones
Company: TAM Group
Brands: 13 PJ’s Coffee, one Zaxbys
Years in Franchising: 11
Financing options are tricky right now. Regular debt is expensive, and banks are more conservative than they have been in the past. Self-funding has been our approach lately due to these issues, but that is not a great long-term growth strategy. We hope to see some relief in the economy soon to allow for more approachable financing options.
Lisa Starnes
Company: Starnes Holdings, Inc.
Brands: 8 Captain D’s
Years in Franchising: 31
We have a great relationship with our local bank, which helps with SBA loans. The Captain D’s corporate team is always on hand to assist as well. When you work with great people, great things happen. We are looking forward to what the future holds.
Bob Ruggieri
Company: Synergy Restaurant Group LLC
Brands: 17 Checkers & Rally’s
Years in Franchising: 17
Assuming the borrowing rate doesn’t come down dramatically in the near future, we plan to expand with our own capital. We transfer funds after each period ends to an investment account that is held for the purpose of future expansion.
Franchisee Bytes
Experience with private equity, local banks, national banks, or other institutions? Why or why not?
We have partnered with a traditional bank in national franchising, which has funded us from the early stage of our growth to now 30 units and counting. Because of our long-term business relationship, we believe we have found the perfect partner to support our future growth plans.
-Phong Huynh, Co-Owner, Fuego Investment Inc., 30 El Pollo Loco
I have worked with all the above. The experience varies greatly and generally depends on your need for the capital and the outcome of your investment to understand the varieties.
-Amol Kohli, Managing Partner, Legacy Brands International, 63 Orange Leaf, 61 Friendly’s (franchisor), 60 Clean Juice, 36 Red Mango, 6 Humble Donut Co., 3 Souper Salad, 1 Smoothie Factory + Kitchen
We value our relationships with local banks, and for good reason. During the 2009 crash, we were fortunate to work with a local bank that provided the financial support we needed to get through that challenging time. Without their help, I doubt I would be a multi-unit owner today.
-James Brajdic, President, Customer Maniacs and Green Bay A Dub, 13 A&W
Local for the newer concepts and national for the established brands is the most efficient.
-Christopher Aslam, CEO & Principal, Rock Strategies and various entities, 59 Jack in the Box, 5 Golden Chick, 5 Hawaiian Bros Island Grill
We have used private equity in the past, but not currently. We mostly use national banks because of the scale of our business.
-Mike Kulp, CEO, KBP Brands, 828 KFC, 119 Arby’s, 85 Sonic, 56 Taco Bell
Yes, I’ve worked with all of them. Local banks often lack the sophistication for multi-unit franchise operations, while national banks tend to be expensive. Private equity isn’t necessary at this stage, though it could be an option when we reach 50 units. For now, WFF is our preferred lender due to its deep understanding of the franchise space.
-Jacob Webb, Franchise Owner, MPUT Holdings LLC, 22 Marco’s Pizza, 4 Tropical Smoothie Cafe
I do not work with private equity. I do have relationships with local banks. They are great and eat with me at our restaurants all the time.
-David Weeks, CEO, The Bean Team, 9 Barberitos, 8 Dunkin’, 4 Newk’s Eatery, 1 Dunkin’/Newk’s co-brand
We have great, long-standing relationships with local banks that handle our financing needs. Private equity has its place, but we’ve worked so closely with our operations team for many years and want to create roles for them. Selling pieces out to private equity could mean losing control of our group and our ability to create more opportunities for our teams.
-Alex Karcher, Operating Principal, JCK Restaurants, 61 Carl’s Jr., 11 Jersey Mike’s Subs, 8 The Human Bean, 8 Dave’s Hot Chicken, 1 Hawaiian Bros Island Grill
We’ve worked with both national and local banks. Building relationships with financial institutions is critical, and we make a point to maintain strong networks.
-Lawrence Kourie, Multi-Unit Owner-Operator, 22 Dave’s Hot Chicken
Local banks have been good since they are in tune with the community. However, for those who are looking to find a bank that understands the franchise model, I highly suggest attending the annual Restaurant Finance & Development Conference in Las Vegas. There are more than 100 private equity groups, national banks, and other institutions all looking to finance a franchise deal.
-Jerome Johnson, Multi-Unit Franchisee, John Cove Management and Jbar Inc., 4 Sonic Drive-In, 10 Dunkin’, 4 Baskin-Robbins, 1 Jersey Mike’s Subs