FranchiseMart Overland Park makes the Kansas City Star
By SU BACON Published: 25/01/2010
Kendera Rimmer wanted to buy the Mr. Goodcents Subs & Pasta franchise at 3037 Main St. in Kansas City.
“This store means the world to me,” said Rimmer, 38, who since 2004 had advanced through the ranks from sandwich maker to general manager. Rimmer’s boss — the owner of the restaurant — was receptive to selling to her.
But owning a franchise means making a purchase. And that takes money, sometimes a lot of money.
“I wanted to own this store so badly, but I couldn’t get a loan from a bank,” Rimmer said.
She needed about $300,000 to cover the $20,000 franchise fee, the purchase of the business and the inventory from the current owner, and other startup costs.
Enter Billy Webb, a longtime friend.
“I told her that I’d give her the money to buy the store if she’d make sure it’s done right,” Webb said.
And so it was that in April 2009, in the midst of the recession, Rimmer became the owner of the Mr. Goodcents store on Main Street.
As Rimmer and other would-be owners have discovered, access to financing can be a huge obstacle to owning a franchise during this recession and expected slow recovery.
Opportunities are there, of course. From the golden arches of McDonald’s to the magic touch of a Midas repair shop, franchise options abound in more than 75 categories.
And banks are expected to lend $6.7 billion to franchises in 2010, according to the International Franchise Association.
But the demand is forecast at $10.1 billion.
“Banks have money to lend, but they’re holding on to it,” said Alisa Harrison, a spokeswoman with the International Franchise Association.
Turning to family members and friends, as Rimmer did, is one solution. Other sources of funds include home equity loans and venture capitalists.
Some new franchise owners are rolling over 401(k) plans from former employers into their own corporations, said Derrick Skogsberg, chief executive officer of Tenet Financial Group in Benbrook, Texas.
“You’re not spending your retirement plan money,” Skogsberg said. “You’ve invested money in a corporation that you have control over.”
That’s how Anna Gepson of Prairie Village financed her purchase of an Aussie Pet Mobile franchise in 2006. Gepson worked with an accountant and an attorney to set up a self-directed 401(k).
The franchise fee, three months of marketing expenses, a van and equipment came to around $100,000 — which was a surprise to Gepson.
“I thought you had to have a million dollars in the bank to start a business,” she said.
With much less than this, Gepson began her career grooming dogs and cats in driveways. Six months after she hit the road, Gepson said, she was booked solid five days a week. Two and a half years later, “I got so busy I couldn’t keep up and was working seven days a week,” she said.
That’s when she bought a second van — this time, with a bank loan — and hired her husband, who had been laid off as a land surveyor.
Brinda Swanson, meanwhile, has been looking for a franchise for two years. While the Lenexa resident hasn’t yet found the right match, Swanson has qualified for funding — a Community Express Loan, part of a 7(a) program offered by the Small Business Administration.
No collateral is required, Swanson said. That’s important because she is looking for a service-based franchise she can operate from her home with no equipment or property involved. The loan also can be small, and she doesn’t expect to need more than $25,000.
About 12 percent of the SBA’s active loan portfolio supports franchise small businesses.
Karen Mills, the agency’s administrator, said the American Reinvestment and Recovery Act, which allowed the SBA to make temporary enhancements to its 7(a) and 504 loan programs, has helped the SBA expand its lending support for franchises.
The SBA also operates a registry, at www.franchiseregistry.com, that lists pre-approved franchise contracts.
Loan applications for franchises on the registry can be reviewed and processed more efficiently and quickly by the SBA and its lenders because the respective franchise agreements do not need to be reviewed in each individual franchisee situation, the agency said.
Consider all costs
Aspiring franchisees need a clear understanding of all expenses.
Total investment can range from $20,000 to more than $2 million, said Brad Johnson, owner of FranchiseMart. The Overland Park retail store, a franchise operation itself, provides information about franchises at all investment levels. Johnson said most visitors to his store are seeking a total investment in the range of $70,000 to $300,000.
The first consideration is generally the franchise fee — an upfront cost that a new franchisee pays to the franchisor.
Franchise fees vary from $5,000 to $60,000 and up, said Marcie Olinger, owner of Overland Park’s The Entrepreneur’s Source, a franchise she purchased six years ago.
“The franchise fee is just the start of getting into business,” said Olinger, who helps people find franchise opportunities.
Additional costs that must be considered include owning or leasing space, along with the costs of equipment, inventory, salaries and taxes. Olinger recommends that buyers have at least $60,000 on hand to tide them over until their business starts making money.
For example, an established Nick-N-Willy’s Pizza franchise is on the market for $140,000, said Jason Brice, franchise development manager for the chain.
Nick-N-Willy’s Pizza has been interviewing potential buyers for the 1,400-square-foot store in Kansas City, Kan. The company will finance $75,000 for five years at 5 percent for the “right applicant” who can put $65,000 down, Brice said.
Brice described the right applicant as someone with marketing and leadership experience — and family support.
SeekingSitters, a national company with home-based franchises that connect parents with approved baby sitters, comes in at the lower end.
Franchise owners need to be families “with entrepreneurial drive and spirit who have children of their own,” said Adrienne Kallweit, who founded the company in 2004.
Total startup costs range from $25,000 to $35,000.
Make sure it fits
For some franchise owners, financial issues help determine the type of business they get into.
“The cost of a business was nearly as important as the type of business when we evaluated our options,” Jim Dresbach said.
Because he and his wife didn’t want to take on significant debt, they ruled out a capital-intensive business. Jim and Patricia Dresbach bought a Snap Fitness franchise in Olathe in September 2007 and opened the center in March 2008.
The franchise fee was $15,000. The Dresbachs worked with a lender recommended by Snap Fitness to acquire a $120,000 loan with a down payment of $30,000.
In addition to fitness equipment, other expenses were build-out costs of $20,000 and a deposit on the rental space of about $8,000.
Owning the Snap Fitness franchise allows Dresbach to continue to hold a full-time job. He hired an on-site manager to work on location 40 hours a week while he uses technology to monitor the center remotely.
“Franchising appealed to me because I knew I could rely on a proven business model with specific processes as well as being able to take advantage of brand recognition,” Dresbach said.
Besides having the funds necessary to purchase a franchise, applicants need to meet other qualifications required by the franchiser.
Mr. Goodcents, for example, wants owners who have established themselves in the community and are involved in the schools, chamber of commerce, and service and civic groups.
Understanding the daily demands of the business helps, too.
“Kendera has loved this business for years,” said Joe Bisogno, president and founder of Mr. Goodcents, which is based in De Soto.
Over the years, Bisogno came into the restaurant where Rimmer was working and grew to appreciate her enthusiasm and dedication.
The Main Street restaurant was a training store for several years, and Rimmer conducted classes for new owners and managers.
Bisogno described Rimmer as “an excellent investment” for Webb, who lent her the money to buy the Mr. Goodcents franchise.
“Financing was the biggest hurdle for Kendera,” Bisogno said.
It’s a hurdle Bisogno understands.
He couldn’t get a bank loan when he founded the Mr. Goodcents company in 1989.
Today, there are more than 130 Mr. Goodcents franchises nationwide.
FranchiseMart Overland Park Brad and June Johnson
Powered by eDirectory™