SCOTTSDALE, Ariz. (September 1, 2009) — GE Capital, Franchise Finance announced today that it provided a $4 million credit facility enabling RDSL to acquire and develop seven Jack in the Box franchise restaurants in greater Dallas. GE Capital only took two and a half weeks to approve and close the deal with RDSL.

Uniting four franchisees from across the country, the franchise ownership company, RDSL, was founded by Rabi Viswanath, David Beshay, Sam Fong, and Lee Su. RDSL currently owns and operates 19 Jack in the Box franchise units in the Dallas and Southern Oklahoma areas.

 “We’re thrilled GE Capital provided certainty of close,” says Rabi Viswanath, partner, RDSL. “Their knowledge of this industry and their client service skills allowed them to complete the deal in a short time frame.”

Based in San Diego, Jack in the Box Inc., is one of the nation’s largest hamburger chains, with approximately 2,200 restaurants in 18 states.

 “GE Capital, Franchise Finance met the challenge head on,” says Dave Stansbery, vice president, GE Capital, Franchise Finance. “This is a great example of a full team performance. This is also another strong indicator that GE Capital is lending and providing great customer service.”

High end franchise financing is obviously available

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Most people ask, “will buying a franchise unit make you rich?”

My sole answer, “No – It WON’T.”  Why do I say that? Am I bitter toward franchising? No – I am a big fan of franchising! I believe in the power of economy of scale and exponential growth – they are the key to riches – both are present in franchising.

 With economy of scale, a franchisee enjoys better purchasing power – simple: 1 business ordering a widget gets different pricing to 100 business ordering the same widget in volume. With the exponential growth of your franchisor, you enjoy better exposure and brand awareness without doing a thing on your part! Neat-o! However, franchising has its drawbacks.

The not-so-good things about franchising – the benefits of franchising I mention above don’t come for free. In exchange of those benefits, you are obliged to pay a franchise fee (which has to be renewed after a certain period of time) and a royalty (or other forms of revenue). THIS is where people go wrong thinking that buying a franchise could make them rich. Buying a franchise is buying a cash flow – yes, you can get a healthy (and hefty) cash flow. You can enjoy a good lifestyle owning a well-run franchise unit, and also enjoy the exposure in your local area (which may also translate into more clients and cash for you). However, in my humble opinion, that’s about it, really. You can’t really get rich and financially free by owning a franchise. I agree what Yaro Starak of Entreprenerus-Journey.com said, that you will be rich AFTER you sell your business, not WHILE you run your business.

Why Franchising won’t make you rich – I believe you have heard stories about the acquisition of Feedburner, Blogger, and such – the owners are rich man, after their business sold. In other words, riches come in the form of capital gain, not cash flow. Cash flow keeps all gears working well, but capital gain buys you the engine.

This is why you should consider starting up your own business – Your franchise unit does have valuable assets – but not the most valuable one – the brand name. No matter how long you own your profitable franchise unit, the owner of the brand is not you – it’s the franchisor. If you eventually sell your profitable franchise unit, you sell assets PLUS goodwill (cash flow, good local image, etc) MINUS brand name value. And that’s not a number you would love to see by selling your business. In my opinion, the biggest selling point (and value) is your brand name – To have it, there is no other way but to own your own business.

The question remains – Purchase a franchise or start up your own business? My answer – if you value capital gain over cash flows, choose starting up yourself. If you prefer the other way around, choose franchising. Also, consider your skill set and entrepreneurial style – no one-size-fits-all solution here  One person can be a better franchisee than the other – this also applies to starting up a business. Choose what kind of entrepreneurship you want to do – it could take decades to find yours. So I suggest start choosing now, before you got too deep in something you don’t like later on.

 Ivan Widjaya on franchising.  Ivans owns http://www.noobpreneur.com  buy a franchise

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Franchise agreement: From a Noobpreneur Point of View*

Franchising is about getting the right business at the right location, right? Wrong! It’s about the franchisee agreement and the ability to stick to it. Therefore, franchising is not for everybody.

Franchising is for those who can follow set rules and comply with the franchise agreement. If you can live with it, you can succeed. If not, you’d better be opening your own business.

Franchising involves two totally different entities united in a common ground called franchise agreement. It would be unfair and biased to talk about franchising from one side only, whereas there are actually two sides involved – the Franchisor (the brand owner) and the Franchisee (the brand licensee). They are united by a franchise agreement. I’m not going to talk deep into franchise agreement, yet (maybe in my future posts?) What I am going to talk about is that the agreement filled and ’spiced’ with the rights and responsibilities of franchisor AND franchisee – therefore, it’s super important.

An agreement between two entities is usually needed due to the ‘contradictive’ nature of the two entities.An agreement is sealed to unite the differences. Franchise agreement is NOT partnership agreement. Alas, many people mistakenly believe that franchise agreement is partnership agreement. This misconception causes wrong expectations of the franchisees – they expect the franchisor to be equal partner with shared responsibility. Well, it’s totally wrong!

There are several basic differences between a franchise and a partnership:

• A franchise doesn’t share profit – it charges a form of royalty and marketing fee in return for support and branding. A partnership (licensing, business opportunities, multi level marketing, etc) – either equal or not – shares profit.
• A franchise doesn’t share risk – the franchisee holds the whole responsibility of the success of its unit, whereas the franchisor guarantees that the support and brand image are well taken care of. A partnership shares risk among partnership members.
• A franchise implements top-down approach – franchisees must comply and follow the franchisors’ guidelines. A partnership, as you might guess, determines who’s in charge by the amount of share owned in the partnership.
• In a franchise, relationships are enacted on set rules – again, in my noobpreneur term, generic relationship. In a partnership, relationships are negotiated – in my noobpreneur term, organic relationship.

A franchisee agreement is very important. Just like any other agreements, franchisee agreement is purposed to lay all rights and responsibilities on the table – to see whether they are the best fit for the franchisee and the franchisor. If you liked it, carry on. If you didn’t, bail out. This is important, because the latter disputes in franchising are mostly caused by the misinterpretation of franchise agreement by the FRANCHISEE – not the franchisor.
In many publications, franchisors are often blamed for the franchisees’ failure. Believe me, more often than not, it’s the franchisee who is a pain, not the franchisor. I’m a franchisee, I know what I’m talking about Yes – franchisors have their own bad, but the call to agreeing or not-agreeing on the agreement is on the franchisees. You sign it, meaning you understand it. Period.

Last words. A franchise agreement is not easy to understand – it’s often lengthy and boring
However lengthy and boring it is – the franchise agreement is crucial. About the length and complexity, the franchise agreements are set to regulate every single detail – to let potential franchisee fully understand what it takes to run the franchise unit. If the agreement was too simple, potential franchisees might see the franchisor is not serious enough to tackle potential problems. One word of advice – if you were not a good agreement reader, consider hiring a lawyer to translate the agreement into more casual language and warn you if potential problems are presented.
Ivan Widjaya, Franchise agreement reader

*Noobpreneur = Newbie Entrepreneur. I define a newbie entrepreneur as someone who is ALWAYS a newbie (first-timer) in his/her entrepreneurship journey. In other words, a noobpreneur is someone who try new things and launch new ventures with no regard to their background and knowledge.

Ivan Widjaja, Franchise believer, Owner/Editor of www.noobpreneur.com

Good advice to follow if you want to buy a franchise.

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From the franchisor side, franchising is a difficult yet necessary way to grow a business. I have a good relationship with my franchisor – the CEO of the Business Services Center. We share a lot about franchising. One time, he shared the following information. It broadened my insight on franchising.

Not all franchisors share the vision of ‘growing together.’ Many franchisors think about franchising as a vehicle to rapidly grow their business and assets – franchisee interests are lower priority. A better goal is for franchisees and franchisor to grow together, because if the franchisees succeed the franchisor will reap the result, too – better brand value and awareness, and strong franchise performance lead to many opportunities.

Franchising a business is not easy. Franchising seems like a good idea to expand a business – but it’s not easy. Although the cash flow is admittedly nice (in my case, the royalty fee is 5% of sales), almost all of it vanishes into R & D and marketing campaigns. The overhead in franchising is nose-bleedingly high – cost are sky high, and performances could be better. What gives? Mismanagement in the headquarters? Liability here is not only the franchisor, but also the franchisee – ‘bad’ and uncooperative franchisees slow progress and consume unnecessary resources. The impact is severe – the other cooperative franchisees and the franchisor suffer the consequences – lackluster support, damaged brand image and value, and lost focus. To ‘weed out’ bad franchisees, he had to splash some money to buy back the broken franchise units. His franchising strategy doesn’t include closing franchise units – buying them back is more viable, in his opinion, to preserve the brand image.

It’s simply not easy. If it is not easy, why insist on the benefit of franchising? Despite the problems, franchising is necessary, and a great, time tested, business strategy. The franchising route, rather than licensing or partnership route, incorporates the exponential nature of franchising. Exponential means covering strategic areas fast and outnumbered competitors – hence, achieving better brand awareness and exposure.

Franchising is at it best if the franchisor and franchisee can work well together. The power of franchising lies in the ability to agree on a common goal despite differences. McDonald’s – a classic story of a successful franchise – became one of the world’s leading franchisors due to its ability to work together with the franchisees.

Currently, my franchisor has more than 110 franchise units. My benefit as a franchisee? A brand image that is nationwide, and a profitable business, thanks to the effort of my franchisor.

Ivan Widjaja, Franchise believer, Owner/Editor of www.noobpreneur.com

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This is the place to share your tips, success, failure, trends, and insight regarding franchise resales.  Where to find good ones. Where to find financing.  What personal qualifications are needed to succeed. 

Your input is welcome.

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