Are YOU Your Company’s Greatest Risk?

Are YOU Your Company’s Greatest Risk?

Steven began his working career some twenty years ago.  Learning business ropes from his father and taking every opportunity to learn from previous bosses and mentors, Steven had a high level of confidence that one day he would own his own company.

Ten years into his career, Steven finally quit working for the man and branched out on his own.  After a slow ramp-up period, things started clipping along and Steven was eventually making money – a profit, even.  In the grand scheme of things, Steven knew that he should probably be surrounding himself with other smart people who could help him make informed decisions about important areas of his company that he wasn’t really all that familiar with.  But ‘knowing’ and ‘doing’ are two different things.  Steven ultimately and unwittingly became one of the greatest risks to his own organization.

Steven had heard mention of cyber security.  He thought there was a slight chance that his company could be vulnerable but he also thought he had a better chance of winning the lottery than he did of being hacked and since the lottery was already a several-million-to-one shot, he pushed cyber security thoughts out of his mind.  His naïve beliefs actually blinded him to the realities of how vulnerable his company really was – and at his own hand, no less.

On his way into his office one day, Steven found a jump drive in the parking lot.  He picked it up and after grabbing a cup of morning joe, he plugged the jump drive into his computer to see if he would be able to figure out who it belonged to so he could return it.  Unfortunately, someone didn’t ‘accidentally’ drop the jump drive – it was intentionally left there, seeded with a virus that sent out a beacon to its cyber-criminal owner to transmit where it was plugged in.  The innocent act of simply plugging the jump drive into his computer ultimately bypassed security and provided the criminal with full access to Steven’s company as well as his family’s personal files.  And just like that, Steven became a statistic.

What You Need To Know

The article below discusses factors that impact businesses, business owners, and members of their Board of Directors, and it also discusses areas that may significantly increase cyber risk, potential liability, loss of business and reputation.

It’s safe to say that data breaches are getting worse and we hear about another major breach somewhere around the world almost every week.  For some, breaches have become commonplace, a part of doing business.  If that’s true, I would argue that ignoring the risks rises to the level of negligence.

The level of concern, especially among business owners, is definitely ramping up.  Despite this concern though, far too many CEO, executives and Boards are not taking the risks seriously.

“Optimism Bias” & Complacency

The first factor that adds to your risk is a theory called, “optimism bias.”  Below are some survey questions I frequently use when speaking at conferences:

  1. Do you believe your firm or business will be breached this year?
  2. If yes, is there an 80% or 30% chance of the breach?
  3. Do you believe another firm/company, or, “the other guy,” will be breached this year?
  4. Is there a 30% chance or 80%?

Most surveyed believe they will not be breached or there is a low probability.  Conversely most believe the “other guy” will be breached and there is a very high probability.  Why?  What have you done differently?  Is your security better than Target, Home Depot, NSA, the Pentagon, Lockheed-Martin, your local merchant?
So ask yourself, “Do the standard security practices work better on my network, or do I use magic security practices that no one else is aware of?”  Whether you are the victim of a random drive-by breach or specifically attacked in order to gain mergers and acquisition data on your clients, you are under attack and you will likely fair no better than most.

If you think your security is better, why do you believe that?  Most businesses surveyed believe their security is pretty good, certainly better than their neighbors’, and the chances of suffering a breach are fairly low.  In reality most companies either will be or have already been breached.  Amazingly, a large number of business owners who claim they won’t be breached also had little to do with the implementation of their own security and likely do not truly understand it.

According to the FBI, cyber crime will eclipse terrorism.  In the past, the saying was that “there are only two types of companies:  those that have been hacked and those that will be”.  Sadly, even that is merging into a new category:  those that have been hacked and those that will be again…

Don’t Assume Someone Else Has Taken Care Of It

Passively assuming that someone else, like your outsourced IT company or your in-house IT department, is identifying and addressing the threats and risks is not an adequate form of risk management.  Some IT professionals may be skilled and thus able to serve a dual-role as security and IT professionals, but most are not.  So, the battle begins — that is, the battle for budget.  Your IT guy’s primary focus is likely “uptime” and making sure everyone can access the network.  Security, unfortunately, plays second fiddle. 

In some cases the IT department or outside company doesn’t know the full risk or extent of the vulnerabilities, but this is unlikely.  What is more likely is that they do know but are hesitant to reveal how bad it really is, and how vulnerable your company is, for fear of the impression it will create.  Regardless of the reason(s), the message about how much risk exists gets lost and is never fully conveyed to leadership which is a risk in and of itself.  IT departments and companies are playing with fire when they don’t reveal the true risks and vulnerabilities and then allow the leaders to address them.

Caveat Emptor!

Have you have seen some of the TV ads for anti-virus companies that claim to speed up and protect your computer?  Regardless of their true intent, they imply  that they will make your computer or network 100% secure.  Well, news flash, they don’t and they can’t!  As a CEO, executive, or Board member, if you are given the impression that your network is secure – or if you’re told nothing and therefore assume it is secure – what will your reaction be when you are breached?  You need to know how bad it is, along with the risks and the vulnerabilities in order to evaluate, mitigate and make informed decisions, so go ask!

Convenience v. Security

Technology has been both a blessing and a curse.  Most of us have a love-hate relationship with our computers and mobile devices.  What we love about them is the convenience, but the security, or lack thereof, threatens that convenience and our privacy.  Most people find the security practices tiresome, awkward, and annoying.  For instance, do you password protect your smartphone or mobile device?  Believe it or not, many don’t.  Passwords are annoying though, right?  Many who do use passwords, usually because they are required to, use a very easy password, like 1234.

In 2014 3.1 million Smartphones were stolen.  With no password or an easy password, a hacker or thief who finds or steals your Smart phone or mobile device has full access to all of your social media, email accounts, texts, contacts, etc.  Think about the high volume of data that your firm deals with, creates, receives, transmits, and carries around monthly.  It is all at risk.  You can’t afford to put yourself at risk because you find security rules inconvenient.

Self-Imposed Ignorance

Self-imposed ignorance occurs when the threat or risk is downplayed. Conversely, “optimism bias” may also be a factor here.  When I speak to companies about cyber-security and the need for a risk assessment, far too often I hear:  “I’m not worried, I don’t have anything the hackers want to steal”, “I’m not worried, my business is too small”, or “I’m not worried, our IT guys make us use really good passwords and we have cyber insurance.”  Wow!  That’s like saying; “I will never get in a car accident because I am a great driver” or “I have good insurance.”  Some things you just can’t control. The old saying was: “There are two things you can count on:  death and taxes.”  The new saying includes a third thing:  getting hacked!  It will happen.  In fact it probably already has and you don’t even know it.

What You Can Do:  Tips, Procedures & Techniques

There are many tips, procedures and techniques that you can implement to improve your security, but, in my opinion, the first place to start and the most important is to do a self-risk assessment:

  •      –  Understand the information you collect;
  •      –  How it flows across your network;
  •      –  What devices it resides on;
  •      –  Who has access to it;
  •      –  How it is kept secure, and;
  •      –  Who you are connected to, (e.g. ISP, Cloud provider, other services, etc.)

If an incident occurs or a client asks what you did or are doing to secure data, responding with, “I don’t know, ask my IT guy,” or, “We use really good passwords,” is probably the worst thing you can say.  Statements like that will significantly increase your liability and make you look incompetent about an issue that is foremost on most people’s minds these days.

The point is, take an active role. You need to lead and manage the process.  Don’t just hand it over to someone else like the IT department or an IT guy/gal or company, and forget about it.  Never assume that your security is great, good, or even adequate.  In all likelihood, it’s not.  Security is a process that needs to be continually managed vs. a set-and-forget concept. At any given time you must be able to articulate what you have done to protect data and your company.  Pointing to the IT guy – whether internal or from an outside company – is not a risk management solution or a valid response during an incident response investigation.  Where does your company stand? Are you a basic, progressing or advanced organization?  Take charge, take control, and manage.


This article was contributed to the National Franchise Institute by David Willson who is a retired Army JAG and an attorney.  In addition to having worked at NSA, he helped to establish CYBERCOM and provided policy and legal advice for many cyber operations.  As the owner of Titan Info Security Group, he specializes in risk management and cyber security to help companies and law firms lower the risk of a cyber incident and reduce the potential liability if and when the firm or its vendor is compromised and all of the client information is stolen.  He also provides cyber security awareness training and assists with other unique cyber issues.

If you are seeking resources to assist in your self-assessment, email David Willson for a free “Cyber Self-Assessment” form.

Brick & Mortar Franchise Success: Know The Costs or Pay The Price

N E W   B O O K !

Amazon #1 Bestseller

Brick & Mortar Franchise Success:  Know The Costs or Pay The Price

Failure is not an option — until it happens!  Then what?  The purpose of the book is to take the guesswork out of the entire development process so franchisees know exactly what it takes to get their new location open in the least amount of time, for the best overall price and, more important than anything else, without making costly mistakes in the process.

Miller dedicated her book to all the brave entrepreneurs who join the franchise ranks with dreams of opening a successful location.

Her new book hit best-seller lists on within 24 hours of release in both the “Franchises” category as well as the “Entrepreneurship & Small Business” category.

With a Foreword by Rick Grossmann and Michael J. Katz, Esq., authors of Entrepreneur Magazine’s Franchise Bible, “Brick & Mortar Franchise Success” provides roadmaps through the build-out process from calculating a realistic timeline for the project, hiring of the right general contractor, architect and attorney, through the physical reality of the construction process and getting the doors open for business.

Carolyn Miller’s no-nonsense approach to site intelligence and construction management reveals specific strategies that have saved hundreds of franchisees millions of dollars. Many new franchise buyers learn the hard (and expensive) way that setting up a new brick and mortar business is challenging and confusing. The average franchise buyer is in unfamiliar territory and historically many make costly mistakes, which can be the downfall of their business.

Franchising is the fastest-growing method of conducting business in the world. Why? Because it works! But don’t be fooled – success isn’t guaranteed and the stakes are a lot higher when leasing space and building physical locations.  “Over the course of a few decades in development with brands such as McDonald’s, Chipotle, and Red Robin just to name a few, I’ve seen millions of dollars wasted on fixing problems that, in many instances, could have been avoided altogether.”

Like most business owners, your primary goal is to operate a successful business.  You can’t actually do that until your location opens.  While you may know a little bit about a lot of things, the devil is in the details.  When you don’t know what you don’t know, especially when it comes to leasing space and building new locations, you could be in for a long, rough ride.  The reality of how much you don’t know (and what can happen next!) can be all-consuming. Enthusiasm, persistence, and dogged determination won’t be enough to save you.

Do not, Do Not, DO NOT sign a lease without reading this book!

Once a lease is executed, you are ‘officially’ a business owner – even if your new location never actually opens!  A lot of professionals with years of business experience assure themselves that there isn’t any part of the building process that they either don’t know or can’t figure out.  What they don’t take into account is the additional time that ticks away while they learn the ropes – and make costly mistakes in the process. No matter how much business experience and success you have had in past roles, if you are not well versed in all that is involved in getting your new location open, failure will find you!

Building new locations hasn’t changed much over the years. Because it happens thousands of times a day across the country, it’s easy to adopt the mindset of, “I can figure this out.” The truth is that you CAN figure it out – but how much will you spend or forego in the process?

Ignorance isn’t bliss — it’s EXPENSIVE!

Failure is not an option – until it happens! Then what? The purpose of this book is to take the guesswork out of the entire development process so you know exactly what it takes to get your new location open in the least amount of time, for the best overall price and, more important than anything else, without making costly mistakes in the process.

Whether you are an independent business owner or a franchisee, if you have plans to lease space to build your first (or your next) location, the book you’re holding in your hands will become one of the most valuable investments you can make!

To your success…

Purchase Your Copy Thru Amazon Here

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Sometimes, Life’s a Beach: A Cautionary Tale of Franchisees & Their Leases

Sometimes, Life’s a Beach: A Cautionary Tale of Franchisees & Their Leases

The call came just whshell-1031290en Kevin was about to drain the last of his scotch. The muffled ring startled him a little as he gazed across the soft white sands to the ocean waters gently caressing the beach.  As a former franchisee, he hardly ever received phone calls anymore, not since buying a condo in an exclusive St. Lucia’s resort – aptly named Sugar Beach – almost five years ago. Unless, of course, it was the concierge informing him about a dinner reservation at one of the resort’s five-star restaurants, or his masseuse confirming his weekly appointment.

His mind briefly flashed back to former times – another place in another time, when he had managed his own franchise retail stores in Virginia and Maryland, working relentlessly to make his dream come true – to be his own boss and to prove his business acumen with the time-honored metric of substantial wealth accumulation. And a very substantial sum it had turned out to be after eight years running his “Pause for Paws” franchise units. Who knew that pet pedicures and beauty treatments would be so popular? That one could so quickly turn Fido into “my dough”? Well, anyway, he was very well off, and he had developed a warm spot in his heart – and his wallet – and for those canines, felines, and other pampered pets.

The rude, persistent ring refused to allow Kevin to reminisce. “All right, already,” he bellowed as he rummaged through his beach bag in search of his phone. He could see his accountant’s name on the screen as he picked it up. Continue reading

The Top Ten Ways Franchisors Can Reduce Outside Legal Fees in 2017

The Top Ten Ways Franchisors Can Reduce Outside Legal Fees

Correlating Service Cost to Client Value 

Franchising is a regulated business. Regulatory compliance requires knowledge and skills that most members of a franchisor’s in-house team do not have.  Failing to comply with state and federal regulatory requirements can have expensive and time-consuming consequences for any franchise system.  As a result, like it or not, operating in a regulated environment requires the assistance of lawyers and law firms.

While most people don’t like lawyers in general but often proclaim to “love” their own lawyer, the business community uniformly hates the expense and unpredictability that outside legal fees wreak on a franchise company’s expense management and profitability.

The good news is that times are changing and, in many ways, the purchase of legal services is becoming a buyer’s market.  The total demand for legal services experienced by outside law firms has not grown since 2007 and, as a result, many of these firms are more willing to cut deals with clients to secure new work or maintain existing client relationships.  If you know how to play the game, you can both substantially reduce the cost of procuring outside legal services and develop a relationship that provides far more predictability to your budgeting process.  With all that in mind, this article will outline the top ten steps a franchise company can take now to better control its outside legal spending in 2017.

Use Monthly Retainer Agreements

One of the best ways to reduce your fees and build predictability into your budgeting cycle is to move away from the hourly billing model and require that your firm bill you on a monthly retainer basis. To maximize efficiency, you should agree on the scope of services and the total amount you are willing to pay for those services over the course of the upcoming year. You then divide that amount by twelve and that becomes the monthly retainer amount. Your firm should understand that your needs for legal services will fluctuate month by month but, in the end, the service requirements should even out and both parties should be happy with the outcome at the end of the year.  Any services required outside of the retainer agreement should be billed according to a separate fee agreement for those services.

Employ Project Fees

A second key strategy for specific project work is to agree upon a fixed fee for the project prior to commencing the work.  Project fees are an excellent way to control costs for a one-off project or a larger project that can be planned out and structured by the firm.  Project fees can be used for any discreet project, from drafting a simple document to negotiating a lease, to completing a financing or merger project.  The key is to request the project fee up front and to agree upon the scope and total cost before the project begins.

Employ Success Fees

A twist on the project fee and a nod to the plaintiffs’ bar, which has long employed contingency fees, is the growing use of success fees by franchisors.  Under this arrangement, the client and the lawyer agree upon the desired outcome in advance.  The client then agrees to pay a base line fee to encourage the lawyer to take on the project, but the big incentive is the agreed-upon fee payable to the firm if the lawyer successfully achieves the client’s goals.  This type of arrangement can be employed in both transactional and litigation contexts.  In the transactional space, the fee could be paid as a reward for completing a deal or successfully negotiating a resolution to a client problem.  In the litigation world, success fees could be paid if summary judgment is granted or denied (depending upon the desired outcome), a favorable settlement is reached, or the lawyer otherwise secures a resounding victory.

Negotiate a Discount

As crazy as it may sound, because demand for legal services has flattened, lawyers are much more willing to discuss discounts off of their “rack” or standard hourly rate.  It is quite acceptable to ask for a discount off of that rate, often as high as ten or fifteen percent (be aware that the best clients in big firms can see discounts as high as twenty five percent or greater).  One note of caution — Lawyers in large firms often have two “rack” rates:  a standard rate and a premium rate which they apply to certain, specialized work or in certain markets accustomed to higher rates.  Therefore, be sure the discount you receive is off the standard rate and not the higher premium rate.

Request a Blended Rate

Most engagements performed by firms are staffed by a team of lawyers and paralegals.  Each team member is billed out at a unique rate based upon that person’s educational degree, years of experience, and status in the firm.  One key strategy used by many larger clients is to ask the firm to have all work performed at a rate that is a blend of the various individual rates charged for the team members.  On the one hand, this approach can work to your advantage if most of the work on your file is performed by senior members of the team.  On the other hand, it can work to your detriment if the firm shifts a disproportionate share of the work to more junior members of the team.  In such instances, you will end up paying an effectively higher hourly rate to have work performed less efficiently by less experienced team members.

Employ Cap Fees and Collars

A “fee cap” is an upper limit on the amount that a firm can charge for a project.  Unlike a project fee, which is a set fee that will be paid by the client regardless of the time invested by the firm, a fee cap allows the client to reap the benefit of very efficient lawyers who charge less than anticipated, while eliminating the risk that the cost of a matter will exceed the maximum amount the client is willing to pay for the project.  In contrast, a “collar” is designed to limit the exposure a law firm has to a fee cap when the time invested by the firm far exceeds the amount budgeted.  Collars effectively “stop the loss” experienced by the firm, and such arrangements are often times a requirement in order to induce the firm to agree to a reasonable fee cap.  With all that said, the key for you is to ensure that, should the amount of recorded time exceed the collar threshold, the firm does not get to recapture all of the revenue beyond the fee cap.

Require Your Firm to Prepare and Adhere to a Phased Budget

The law firm model is designed to shift the risk around legal fees away from the firm and entirely onto the client.  However, if you require your firm to prepare and adhere to a budget, you can effectively shift that risk back to the firm.  The key to implementing this strategy effectively for larger projects or disputes is to require your firm to break the engagement into phases and then build a budget for each phase.  This is particularly helpful for litigation matters and multiphase transactional projects (i.e., mergers and acquisitions projects).  By having a budget for each phase, you will have a better understanding of the costs you will incur as you move deeper into the project.  Furthermore, as you come to the end of each phase, this approach gives you the opportunity to terminate the project or pivot in a different direction.  Employing this strategy also requires firm attorneys to think through the process in advance and to manage each phase in your best interest.  An added benefit is that this approach allows you to evaluate competing bids from multiple firms.  Finally, creating and adhering to a phased budget for a project enables you to hold your firm accountable and to determine where the weak links are in the firm’s service and billing practices.

Hire the Right Lawyer and Firm for the Job

When looking to engage a law firm for any specific legal problem or service, the firm with the “right fit” generally has the following characteristics: (1) Legal expertise in the issues facing your company; (2) Direct and extensive experience in your industry or marketplace, (3) Keen insight into the business opportunities or challenges you face; and (4) Strategies and recommendations for capitalizing on the opportunities and minimizing the risks associated with the challenges you confront every day.  In addition to these four characteristics, there are two other factors that underlie a successful relationship.  First, there must be a direct and tangible correlation between the fees charged by the firm for your project and the value provided to your company.  In franchising, there are a number of excellent firms to consider, but many offer fee structures that simply do not provide enough value to a new or emerging franchisor.  In fact, some of these firms are too expensive for even the largest of franchise systems.  Second, and this factor can never be underestimated, you have to like and trust your key advisors at the firm.  Nothing matters more to ensuring success than your ability to trust and enjoy working with the team that advises you on a regular basis.

Reject Lawyers with Limited Experience and Expertise

This is a corollary to the topic addressed above.  As a client you should know that most law firms often employ the “next man up” strategy when staffing client matters, which means they will always use internal resources first even if those resources do not deliver an exact match to the client’s needs.  As a result, unsuspecting clients often find that junior lawyers and less experienced lawyers are learning their craft on the client’s dime and therefore add the least value to the client engagement.  These lawyers are also the least efficient and require more senior lawyer supervision and review, which is also done on the client’s dime.  The truth is that most large companies have policies prohibiting the use of first and second year lawyers on their files; so should you.  In addition, never forget that junior lawyers have the most pressure to bill significant amounts of time in order to preserve their jobs.  And finally, junior lawyers are the most overpaid based on their skill sets, as evidenced by the extreme and outrageous raises announced earlier this summer by more than 100 of the largest law firms in the country.

Demand Collaboration with Alternative Legal Service Providers

It is axiomatic that law firms like to do everything in house and see every issue faced by a client as solely or predominantly a “legal” issue.  This approach gives them both more control of each project and enhances their ability to bill the client.  However, even the most basic legal projects can be disaggregated, or broken down, into smaller, more manageable pieces.  Only in rare instances should the law firm provide the full spectrum of services on any given client project.  Using alternative legal service providers as part of the team ensures that the right advisor is handling the right portion of each project.  In addition to significant cost savings, alternative legal service providers often excel at project management and the “blocking and tackling” legal work that law firms cannot handle very efficiently.  In the franchise world, this work includes regulatory compliance and registration filings, agreement preparation and documentation, intellectual property matters, and even many phases of a merger project (from due diligence all the way through the preparation of disclosure schedules and closing documents).  Most importantly, alternative legal service providers are generally structured as traditional businesses, not run as law firms, which means that they offer fixed fee or project billings, avoid the inefficiencies and expenses associated with the billable hour model, invest in technology to enhance efficiency, better align their interests with those of the client, and deliver true value to the client in relation to the fees charged and the services delivered.

Mark Cohen, a professor at the Georgetown University Law Center and the owner of Legal Mosaic, had this to say in a recent blog post. “Service providers have grown in number and market share because clients realize many ‘legal’ tasks do not require law firms. Clients – not law firms – determine which challenges are ”legal” and require the specialized expertise and high-value legal judgment law firms provide. And for most everything else, legal service providers are increasingly the choice. . . . It comes as no surprise, then, that well-capitalized service providers – not law firms – are transforming the delivery of legal services. Not only is their structure different from law firms, but so is their DNA. It is linked to the business community it serves and, so, correlates service cost to client value.” (emphasis added)


Various developments in the marketplace for legal services are shifting the balance of power between law firms and legal service consumers.  Although complying with the franchising industry’s regulatory environment still presents many challenges to franchisors, significant opportunities are emerging for franchisors to do so more efficiently and cost effectively as long as they are well-informed and strategic with respect to how, and from whom, they purchase legal services.  Employing one or more of these strategies now will ensure that you reap the benefit of meaningful cost savings in 2017.

This article was contributed to the National Franchise Institute by Kevin Hein with Alexius    (720) 391-0069

Risk Mitigation for SBA & Franchise Lenders

Risk Mitigation for SBA & Franchise Lenders


YOU’RE APPROVED! These are two of the most exciting words for a new franchisee to hear and for a lender to say. After painstakingly digging into the details, weighing the risks, crunching the numbers, and figuring out ratios, this milestone is the jumping off point that sets new wheels in motion. The Happy Dance begins!


Unfortunately, sometimes those wheels can drive naïve franchisees right off a cliff!


The money that was borrowed to get their business open is often eaten up (even gobbled up) by costly mistakes they had no way of knowing even existed:


  • The set-up of their company was done according to advice from well-intentioned friends or family members who may not have realized the tax ramifications. If the intended corporate structure does not match the actual registration, the Tax Man will cometh! Regardless of what the money was originally borrowed for, Uncle Sam will take his cut off the top (and seldom is that ‘just a little off the top’). What remains may not be enough to actually get the doors open. As the lender, how will you get paid back?


  • The Franchise Agreement has been signed – and now, so has a lease. Without realizing the role that local zoning plays in areas such as permitted uses and utility requirements, this poor franchisee unknowingly gifted $75,000 of your money to its landlord because they didn’t know what they didn’t know. With a signed lease comes the ties that bind. “I’m sorry” or “I didn’t know” won’t grant this franchisee a do-over. With a $75K haircut, will this franchisee make it? As the lender, how will you get paid back?


  • A different franchisee to whom you loaned money decided that boiler-plate legal jargon in the landlord’s standard lease was standard practice and proceeded to sign the lease without proper legal representation. As luck would have it, a critical ‘out’ clause (like the inability to secure a liquor license) was conveniently missing from the landlord-friendly lease. This franchisee will still open its doors and operate the business, but with significantly lower sales because they are prohibited from serving alcohol. Will the lower sales still cover overhead costs and the monthly note on the loan you have with them? As the lender, how will you get paid back?


The list of possible ‘what ifs’ can stretch a mile long. The dollars associated with those ‘what ifs’ can easily stretch into the tens of thousands. The dance is not so happy now and if I were the lender, I would be shaking in my shoes!


“When there is a $5,000 mistake on a franchise project, the

franchisee has a problem. When there is a $100,000 worth of mistakes

on a franchise project, the lender has a problem.”


A significant portion of lenders’ due diligence comes from the very important question of ‘How will I get paid back?’  This is such an important question that it is often asked several times while running through various scenarios.


Despite all of the number crunching and due diligence that goes into approving smart loans, few lenders take the time to qualify borrowers about their knowledge and ability to actually get the doors open. This is super scary because the build-out of their location is likely the biggest reason the franchisee needs your money in the first place.


Yes, it is true that established, national brands often play more of a hands-on role with their franchisees in these key areas. With new concepts hitting the scene almost daily, there is a critical gap in the assistance that new and emerging franchisors are able to offer to their franchisees. It is not a matter of wanting to, the fact of the matter is that they have not grown large enough to be able to bring these resources in-house. This leaves franchisees to figure much of this out on their own. All the while, everyone’s fingers are crossed:

  • The franchisor’s fingers are crossed because if the franchisee fails, it is not only a very public failure with consumers, it also gets reported to the FTC and becomes a disclosure to future prospective franchisees;
  • The franchisee’s fingers are crossed because their life savings, their future income potential, and their livelihood are on the line – not to mention their family’s safety and security;
  • As the lender, your fingers are crossed because you are really hoping that the intelligent person who brought a business plan, financial statements, and past business experience to the table is wise enough to know their construction limitations and will seek the help they need.


The Risk Mitigation Tool That Lenders Are Adding to their Toolbox


Lenders ToolboxIn two days and for a fraction of the cost of one mistake, the National Franchise Institute’s ESSENTIAL COMPETENCIES program is an insurance policy that helps to mitigate a lender’s risk on loans that fund the building of new locations.

Borrowers include the cost of this program into their loan;

As an incentive, some lenders are rewarding borrowers with a more favorable interest rate for participating in this program and significantly increasing the likelihood of success


Click Here for a pdf About This Vital Program


Franchising is the fastest-growing method of conducting business in the world. Lenders love franchising! Lenders really love successful franchise loans.


When costly mistakes are prevented on the build-out side, franchisees significantly increase their chances of success and they are in a much better position to meet their loan obligations. The franchisor, the franchisee, and the lender all start toe tapping, gearing up for the Happy Dance.


Sessions are scheduled every six weeks in Denver and are limited to a maximum of 25 people!  The ideal timing for the Essential Competencies program is after a Franchise Agreement has been signed but before the search for real estate begins (and DEFINITELY before a lease is signed!).


Click Here for Program Dates, Details and to Register