Financial data points aren’t the only factor that influences franchise lending decisions. In this blog, we summarize Claromentis CEO Nigel Davies’ insights on the importance of operational efficiency, highlighting which proof points banks and lenders value.
An entrepreneur approaches you, eager to buy into your franchise. You screen the candidate, hand over the franchise agreement, and start making tentative plans. But before you can get the ball rolling, there’s one hurdle you need to jump over: the franchise financing.
In most cases, franchisees will only have some personal money set aside to foot the start-up costs. The rest of the bill? That’s dependent on securing a franchise loan.
Fortunately, most banks are willing to lend owners between 50% and 70% of the total initial costs (including working capital), providing they present a watertight business plan, credit history, and expenditure breakdown.
However, keep in mind that this percentage typically concerns established franchise models. Consider Vodafone or McDonald’s — franchises that have hundreds of locations, irrefutable brand reputation, and decades worth of market success. These types of franchises are a risk-free investment for lenders.
When it comes to lesser-known franchises — or franchises that don’t have such longevity — funding may not be so easy to secure. In these situations, owners need more than financial data points and business plans to get lender buy-in. They need you, the franchisor, to provide them with concrete proof of operational efficiency.
This is a topic Claromentis CEO Nigel Davies recently explored on LinkedIn, following discussions with franchise experts at leading UK banks, Barclays and NatWest. In this blog, we’ll summarize his thoughts and demonstrate how a solution like Claromentis can be a helpful tool for franchisors and prospective franchisees alike.
Money matters. Of course it does. But current financial performance doesn’t necessarily demonstrate a futureproof franchise model.
“A lender’s due diligence is of course going to examine in depth the creditworthiness of the franchisee and the trading performance of other units in their network,” says Nigel. “But operational risk matters just as much as financials – a weak system will undermine even the strongest of numbers. Lenders want evidence that the system itself is well run.”
Speaking of the operational proof points lenders prioritize, Nigel highlights:
As a quick side note: these operational proof points aren’t just attractive to lenders — they’re often key requirements for joining a franchise association. If you can secure a membership to an establishment like the BFA or IFA, you can improve your chances of securing a franchise business loan by extension.
The larger your network grows, the less control you have. It isn’t possible to visit every location on a monthly basis to oversee services and provide advice. Nor is it feasible to share updated product information with hundreds of franchisees using an unreliable, overflowing email system.
At some point, manual franchise management simply doesn’t work. And this means you have no way of ascertaining operational efficiency, policy compliance, or uniformity. All of which are essential for reassuring lenders when applying for a franchise loan.
The solution to this problem is simple. Invest in a singular franchise management software that enables your network, consolidates your communications, standardizes your processes, and brings total clarity to your operations.
This is exactly what Claromentis delivers.
Claromentis’ integrated franchise training software enables you to build and deliver training programs for every franchisee in your network. Use cases may include: franchisee onboarding, health and safety courses, and product knowledge training.
It’s mobile accessible, making it perfect for deskless and frontline employees. And the platform automatically generates certificates and training records, providing franchisors and lenders with concrete evidence of uniformity, consistency, and compliance.
Claromentis provides a suite of intuitive information management applications, designed to enable your franchisees and instil consistency across your operations:
All of this leads to more unified customer and brand experiences — a key contribution to lender confidence.
Franchisees must adhere to your operations manual, as well as any other internal and external policies, including data protection regulations and labor laws.
Of course, it isn’t always easy to guarantee compliance with these documents — particularly if you rely on paper based processes. This is where Claromentis' compliance capabilities can help.
Our Policy Manager application manages the complete policy and/or handbook lifecycle, from drafting to distribution. Acceptance check boxes enforce user acknowledgement and acceptance, which is key for regulatory audits and proving compliance to lenders and franchise associations. A native AI assistant ingests policy information and summarizes the content in clear, easily understandable language. And integration with our franchise LMS allows you to add these policies to your onboarding and compliance courses with ease.
With our integrated franchise operations and automation software, you can build no-code ticketing systems that capture franchisee problems or requests.
As Nigel succinctly describes on LinkedIn: “In practice, this means franchisee requests go straight to the right franchisor team (marketing, HR, compliance, finance) who receive an ordered queue of requests, with status and relevant information — so that they can work efficiently. Each request project can be set SLAs so that the franchisor can prove that they are responding quickly and efficiently to all the franchisee requests.”
By automating these types of requests, you can mitigate errors, prevent franchisees from using unauthorized marketing materials, and strengthen relationships with your network.
Our handy project and task management application is the perfect solution for streamlining franchisee onboarding and unit launches.
You can assign tasks to owners, track progress, and facilitate 1:1 communication with integrated comment threads and document sharing. Combined, these capabilities will get your new franchisees up to speed quickly and give your lenders confidence in the strength of your onboarding processes.
Tip: It may also be helpful to use the Claromentis Pages application within the franchise intranet to design resource-rich onboarding pages for new franchisees, including clickable links to these project management spaces, as well as your e-learning courses, Knowledge Base articles, and operations manual.
Our upcoming application, Organizations, is a powerful dashboard that consolidates key unit information and presents it in an easily digestible format.
As a franchisor, you’ll be able to glean a quick overview of:
Prospective franchisees can use these dashboards when speaking to lenders to simplify the loan application process. As Nigel aptly puts it: “The main impact of making operations transparent and structured is of course that franchisors support their franchisees better, but in doing so they also help to unlock faster finance, on better terms.”
We’ve been helping franchisors manage their networks more effectively for over 25 years — from reining in Winkworth’s disconnected communications to establishing one source of truth for Viterma.
So why not see how we can help your franchise network enhance efficiency, secure better funding, and scale at speed?
To find out more about our AI-powered franchise management software, book a 10-minute discussion call with our franchise experts. We’ll assess your requirements, give you a tour of the platform, and help you get one step closer to operational excellence.