A franchise remodel is a fantastic opportunity to improve your customer experience and attract new customers, both of which are great ways to boost sales. We commonly hear from our franchise clients that they see a rise in both foot-traffic and revenue almost immediately after a remodel is complete, with the average increase tending to fall somewhere in the 15 to 20 percent range (I’ve even heard reports of 40 percent plus!). A project like this can be a significant investment, and while the remodel is in progress, there will be a temporary disruption to your business and your cash flow, which can be an easy hurdle if planned for in advance.
These cash concerns explain why financing a remodel is so important. Locking down your finance strategy early in the project planning process is important so you can be in a position to react fast when funds become due throughout the project for labor, build-out, equipment and more. This article will give you a sense of how to plan for your remodel, how to make franchise financing work for you and how it can help long after your remodel is complete.
Plan Your Remodel
Your remodel won’t happen overnight, so having a plan in place for overcoming the short-term impacts to your day-to-day business is important. The first thing that needs to be considered is how long your store and sales could be impacted. The faster the remodel happens, the faster you are up and running and serving your customers with a fresh new look. Tight project management by your general contractor, your lender, and most importantly, yourself, will help ensure the job is completed efficiently.
While the impacts to your revenue will eventually be made up through increased profits, your relationship with your customers and employees will need attention as well. In the event that you do need to close at times during your remodel, notifying those parties well in advance will be important.
Once you have the timeline figured out, it’s time to line up a trustworthy contractor. Get an estimate, get references, and negotiate over the price. Don’t be afraid to get multiple bids, it’s a great way to feel confident that you’re getting the best deal. Finally, and most importantly, be sure you’ve found someone with a reputation for coming in on schedule and under budget. Having a great contractor will make the process smoother for you.
Once you have a contractor, a schedule, and have let your community know what’s going on at your store, your next action should be to consider how you’ll be financing the project.
How to Finance Your Remodel
A great place to start is to determine the incentives that may be available to you – some brands may cover a portion of the remodel cost or provide short term discounts on the franchise/renewal fee or royalty/advertising fund relief for a period of time. Also, your Franchisor may have teamed with a lending partner to create a specific lending program for remodels. Your field support person should have a good idea of what’s already been available to you and your fellow franchisees.
Next, you’ll either need to turn to a trusted franchise finance partner or find one. When searching for a lender, look for one with a good grasp of the franchise industry. A lender who understands your business and has financed remodels before will be an asset, and can help you avoid any unforeseen headaches caused by things you’ve overlooked.
The key is to work with the lender to produce a finance program tailored to your particular needs. Consider the following factors as you decide on a plan:
• What’s lender’s relationship and experience with your particular brand? Ask for a franchisee referral or check with your Franchisor Finance Team to see if the lender is approved.
• Is deferment possible? It’s advisable to try to seize an opportunity to defer payments while the actual work is being done. This way, you can avoid making payments while business is impacted.
• Are repayment terms flexible? Chose payback terms that make sense for you. If you have an extremely profitable location and you expect to pull in even greater revenues once the remodel happens, you may want to pay your loan back more quickly. If you’re expecting the revenue growth to come more slowly, set the payback length out further.
• Did you cover all the bases? Read before you sign, so you understand the finance agreement completely. Make sure you know what you will be paying, when you need to make payments and are aware of any end-of-lease information.
If you choose a lender you can trust and go through this checklist, you will wind up with the money you need and comfortable payment options you want without the headaches you do not. You or your finance partner will then be able to pay your contractor and get the ball rolling on your remodel.
Don’t forget, while your remodel is underway, it’s an excellent opportunity to upgrade equipment, plan marketing, and train new staff.
Market Your Remodel
Once the tarps come off and the sound of saws has died down, you will have to be ready to show off your fresh new look. It’s time to plan and execute how are you’re going to tell everyone about it.
The key to marketing your re-model is to emphasize an improved customer experience. Whether you’ve added more space to dine in, expanded your menu offering, or added new equipment or drive thru lanes to improve speed of service, you need to make a point of highlighting your new features and stir the public’s interest and excitement. You’re a part of their community, and it’s important to share the pride you have in your newly remodeled location with the people who will be supporting your business. Make sure you’re a landmark! Consider distributing coupons or marketing other short-term discount incentives to drive immediate traffic post-remodel.
A short-term working capital loan from a trusted finance partner is a great product to use to fuel your publicity and marketing efforts. In a small community, a couple of radio ads or a billboard might be enough to pull in new customers in a hurry. In larger markets, it might help to turn to your franchisor and see if they are willing to flex some marketing muscle in your local market to bring in new customers.
At the end of the remodel process, you have a recipe for real success, in the form of happy employees, eager customers and more than likely, a nice lift in sales to boot. With the help of a trusted lending partner and the right preparation, the process will much easier and more efficient than you ever thought possible.
Robyn Gault is the Vice President of Strategic Accounts for Direct Capital Franchise Group. Direct Capital Franchise Group is a national direct lender with 20 years of experience. The firm partners with Franchisors to provide competitive financing to support new store development, remodels, relocations, store acquisitions, equipment upgrades, and more.