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Financing

Franchise finance: Business value & Borrowing power

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Restaurant franchisees can enhance their opportunities for long-term success by working with a trusted partner to better understand their business value and how that translates to their borrowing power.

A lending partner who understands how to achieve these objectives can help operators navigate the challenges of the modern operating environment and position the company for growth.

Business value

Here are six tips for optimizing business value from Wintrust Franchise Finance:

  1. Maintain liquidity – Reserve cash for an acquisition or new unit development to keep at-close leverages reasonable, to create future borrowing capacity and to maintain a cushion in the event of a downturn or negative event.
  2. Optimize overhead – Maintain the appropriate level of G&A expense to maximize the cash flow available for growth and to increase marketability to potential buyers.
  3. People plan – Bench strength is critical to growth. Build a trusted team to ensure the ability to successfully integrate new units into the organization.
  4. Reinvest as needed – Reinvest in a consistent and timely manner to optimize the business’s value for a potential sale to a buyer and avoid depleting borrowing capacity that could be used to finance growth.
  5. Financial Reporting – Timely and accurate financial reporting allows lenders to quickly evaluate performance and assess borrowing power and offers potential buyers a clear view of the business.
  6. Leverage real estate assets – Manage a real estate portfolio to add value for the long term, and improve your ability to control cash flow when there is disruption. Or monetize for growth capital through executing a sale-leaseback transaction.

 

When making these decisions, you should look for a trusted banking partner, like Wintrust, that will maintain ongoing communication throughout the planning process to help understand how business value equates to borrowing capacity.

Borrowing power

Wintrust also provides clear and continuous communication as they work with customers to be transparent in assessing their borrowing capacity. This includes both a financing product and a debt structure that will enable you to have a commitment in place to move quickly when opportunities arise.

  • Product – The most common products are a Term Loan, and Development Line of Credit:
    • A Term Loan is also common in acquisition financing, as well as transactions including a recapitalization of a business.
    • A Development Line of Credit (DLOC) provides you with a documented commitment with identified deliverables so you know exactly what is required of you in order to access funds.  The DLOC availability is paired with an incurrence test (typically tied to a leverage metric) with frequent (generally quarterly) calculations performed, so you have insights into your ability to borrow and at what capacity. 
  • Debt structure – Drawing from our team’s deep experience in the franchise finance space, financing solutions are custom crafted to each borrower’s unique situation.  When creating a solution, we contemplate a long-term plan for our borrowers, which may consist of:
    • Required reinvestment in existing units
    • Required new unit development
    • Acquisition of existing units

The goal is to plan for the future, while maintaining value and borrowing power.  This allows you to negotiate with confidence, and allows your lender to plan to meet your closing deadlines efficiently.

Grow your franchise business with a trusted partner who will help you navigate the ups and downs of today’s business environment. Wintrust Franchise Finance plans for the long term, provides speed in execution, and certainty to close.

A trusted lender like Wintrust allows you to focus on running a great business, so when a financing need arises as you continue to grow; you understand how your business value equates to your borrowing power. 

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This post is sponsored by Wintrust Franchise Finance

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