March 21, 2016
Main Street Monday – Franchisees Bullish on Economy
By Bob Coleman
Editor, Main Street Monday
Edith Wiseman serves as President of FRANdata, a leading advisory and research firm focusing on the franchise industry. Wiseman played a pivotal leadership role in the creation and growth of the Franchise Registry, a website accessed by more than 7400 lender members who want to verify and review their franchise loan applications. Highlighted in Franchise Times magazine as a rising star in franchising, Wiseman has long been a key figure in understanding and promoting business model and franchise finance best practices. Wiseman was recently named to the International Franchise Association (IFA) Supplier Forum Board and has co-chaired the Women’s Franchise Network. A much sought after speaker and expert on franchise performance standards and franchise financing, Wiseman has moderated and presented at numerous industry and lending events throughout the United States. Wiseman frequently writes on franchise topics for Franchising World, Franchise Update, and Forbes.com.
Bob Coleman: I am talking with Edith, President of FRANdata, as our special guest. She is one of the country’s leading experts in Franchising, Edith welcome.
Edith Wiseman: Thank you.
Bob Coleman: You just came back from San Antonio at IFA, one of the largest conventions out there. What is the mood, how do people feel about franchising Main Street these days?
Edith Wiseman: So the mood is very upbeat. They are excited about the new leadership at the International Franchise Association. Leading the industry with any challenges that are encountered with respect to joint employer or minimum wage increasing. They are fighting them at the local, state, and federal level. In terms of franchise prospects for growth it is a very growth oriented mind set unlike in previous years where years of economic downturn really tampered everyone’s expectations. This year was a very positive outlook.
Bob Coleman: Are franchise models still going strong?
Edith Wiseman: Very much so. We are tracking one to two new franchise brands a day. Even though there have been lots of reports in the news about McDonalds and the National Labor Relations Board, it is not deterring prospective companies to franchising.
Bob Coleman: Give us a National Labor Relations Board 101 and an update on what they are doing and why we should be concerned as lenders.
Edith Wiseman: I do not think there is anything for lenders to be concerned about. It is something that the franchise industry is paying attention to because there is always a concern that when someone experiences something at the local McDonalds that there is some sort of vicarious liability where the Franchisor would be responsible for the actions that happen at the franchisee location. With these labor disputes, particularly with McDonalds, there is a concern that a ruling around joint employer would actually make corporate McDonalds responsible for the actions of the franchisee’s employees. So the industry is very concerned about this and fighting it on every level. There is nothing right now for lenders to be concerned about but it is something that the industry is taking very seriously.
Bob Coleman: What about the minimum wage issue? That could affect my cash flow analysis two years out if wages keep popping up at the local level.
Edith Wiseman: I think that the industry accepts that minimum wage increases are happening. It’s just a matter of how much and figuring out a way to digest those increases.
Bob Coleman: I hear there are robots in our future, in the next couple of years.
Edith Wiseman: Absolutely, some of the research we have been doing on behalf of franchisors is directly related to technology and how to improve efficient operations to grow the business without adding additional staff.
Bob Coleman: We have SBA 7(a) Underwriters on the line, tell us what SBA is saying about rule changes to affiliation and franchising.
Edith Wiseman: I was at the Georgia Lenders Conference (2016 Southeastern Small Business Lenders Conference) in Hilton Head, SC and there were some SBA officials talking about how the affiliation rules are in clearance with OMB. They are hoping for some movement on that in the June timeframe. There is always a caveat, they say their fast is our slow so there are no promises. With respect to the changes to the franchise rules and processes, no details have come out but we all certainly would like some sort of streamlining and reduction to the rules. They are working on it and they think people will be happy with the outcome.
Bob Coleman: I’ve liked the changes SBA has made in the last couple of years to simplify this process. SBA understands that our borrowers are very attracted to the online, alternative, FinTech lenders because of the ease and access to capital albeit at a very high price. They are trying to make it simple for the lenders and for Main Street. They got rid of the personal resource test and simplified SOP’s. Tell us what FRANdata does, what is the Franchise Registry? And I hear rumors of implementations of new websites coming out soon. What is happening in your corner of the world?
Edith Wiseman: We are providing lenders with the ability to judge brands based on their credit worthiness. One of the challenges to franchising is really knowing the difference between the good and the bad brands. We are helping lenders with those determinations with a new tool called the Fund Report. And to simplify, it is a credit report for a franchise brand that you understand as a lender whether the system is strong enough to support the loan that you are underwriting for a period of seven to ten years or longer. We are looking at the payment history of the brand in its entirety, in addition to other aspects of the brand unit that are critical in understanding whether or not your borrower will be successful. It is put into the context of a credit report similar to FICO. So you will know whether or not this brand is on the higher end of performance. We are also providing a subscription to the Franchise Registry, which can delve into deeper questions. For example, “I am interested in financing brands, I am community bank, I can only lend into one state. What brands are growing into my state?” We put data onto the site so lenders can self-service and understand who the franchise systems really are. Who they can give attention to both on a creditworthy standpoint as well as a growth and opportunity standpoint.
Bob Coleman: One of the takeaways we have all learned from the Great Recession is there is a lot of data out there that we can utilize to make better lending decisions. 10-15 years ago lenders would make the loan to the franchisee without really knowing what was going on with the brand. That has certainly changed hasn’t it Edith?
Edith Wiseman: It absolutely has, and I will say that we have about 900 franchisor clients that we work with every year. We’ve expanded our base service offering of financing eligibility services to include the credit eligibility. We are going through the franchisors credit report and telling them what they need to do to improve. For instance if a brand has things in their franchise agreement from a credit standpoint that inhibits a lender to collect on collateral, we are counseling franchisors that this is an impediment to credit worthiness and might want to consider changing that to make it easier for lenders to do business.
Bob Coleman: Absolutely and they want to sell more units. Edith Wiseman, President of FRANdata, thank you so much for bringing us up to date.