With the challenges that franchises face to receive financing mounting, what factors will determine which franchises get funded and which franchises don't? More and more, it seems that franchises will have to consider expanding their brand presence if they want to receive the cash flow that's vital to running their organization.
In a recent interview with the San Diego Union-Tribune, IFA CEO Stephen Caldeira provided a really interesting glimpse into the financing process for franchises today. After an explanation of the on-going financing obstacles for franchises, he said that :
“Banks are looking at franchisers as they should any potential customer ― with a closer look under the hood,” Caldeira said. “We are encouraging banks to look at franchisers’ performance history, the growth of their brand, the strength of their franchise system and their growth domestically and internationally.”
Most of these factors are economic metrics, however strength of brand is much more difficult to define. Clearly it is something developed over time and is generally not contingent on a franchise's general performance. Branding is developed through direct advertising, but more and more, through viral strategies.
For a franchise that's desperate to grow, it's clear that economic performance is not just the end-all, be-all. Banks want to see that a franchise has a grasp of its own brand evolution. In 2011, businesses who ignore their brand identity do so at their peril.