Financial resources are a critical and vital part of any organization. Anorganisation can manage their financial needs through internal and external sourcesof finance. “Internal finance” is obtained from the business itself, and “Externalfinance” is obtained from sources outside of and separate from thebusiness. Source: (Cunningham, 1980)Starting afranchise requires finance to buy the rights to operate as a franchise, lease/buyequipment, hold inventory, business growth, etc.
Opening a KFC franchisee outlet requires a lot of finance at the start. KFC requires franchisees to have:§ Net worth of $1.5 million and liquid assets worth $750,000.§ KFC chargesits franchisees a franchisee fee of $45,000.§ Building andequipment (grills, fryers, etc.) cost about $0.7 – $1.2 million.
§ Other fees, includingtraining and property costs, takes the total start-up cost to about $1.3 – $2.5million.§ Franchiseesalso need to pay KFC fees on regular intervals towards royalty and brand advertising. Listed below are some sources of finance to help open a KFCfranchisee:1.
Franchisor Financing OptionsApproaching the franchisor is generally the 1st option whenseeking funding. Many franchisors offer some form of debt financing, or offerfinancing plans for leasing equipment and operational costs. KFC’s parent company “YUM Brands” offers 3 financing options as listed below:a. YUM CapitalFinancing Program: This covers construction of new KFC franchise outlets,buyout of existing KFC outlets, and upgrading of existing outlets. The maximum fundingthat can be given to a franchisee is $5,000,000, and the minimum funding is$200,000.b.
YUM MinorityLending Assistance Program: This program provides financing for ‘minority’ franchisees buying anexisting KFC Outlet, or purchasing an existing KFC-owned outlet, or creating a newoutlet. YUM guarantees 25% of up to $12,000,000 of the principal of thefranchised business loan, and up to a maximum amount of $3,000,000 per franchisee.c.
Wells FargoEquipment Financing Program: This financing program has been arranged throughWells Fargo Equipment Finance, Inc., through which Wells Fargo will extendcredit to certain KFC franchisees for a limited period.2. Conventional Banks and Credit UnionsThe main advantage of approaching a bank or credit union for fundingis that they will recognise the benefits of associating with a KFC franchise ratherthan an unknown start-up. Banks will expect the franchisee to have their creditin order, have a detailed business plan in place and expect a minimum 20%contribution towards franchisee equity.3. Small Business Administration (SBA)Loans from SBA are available for franchisees on meeting certaincriteria.
Apart from a longer repayment schedule, SBA loans also offer lowerdown payments when compared to conventional bank loans. This is an appropriateoption for those franchisees just starting out with a new business venture. 4. Business PartnersIt may need 2 or more entrepreneurs to join hands to open a KFC franchisee.
Choose business partners who can bring in financial capital and have theskillsets to operate a business. Another option is to find a venture capitalistor angel investor who can provide the starting capital.5. Owner’s SavingsThe franchisee ownercan use his savings, or sell of existing investments in stocks, bonds and realestate to provide the money to finance the franchise or provide equity moneytowards a loan offered by a bank / lender. If the franchisee owner is alreadyin business, then retained profits, sales of surplusand non-performing assets and reducing inventory levels will also be a goodsource of finance.6.
Borrowing from Friends and RelativesA major advantage of seeking funds from friends and family membersis that providing collateral can be avoided. Easier repayment plans andinterest terms can also be worked out.6.0 LEGAL AND ETHICAL ISSUESFor past many decades, fast food companies have been severely criticizedfor their animal welfare record and their links to health,obesity andadverse environmental impact. Some of the legal and ethical challenges faced byKFC are listed below:§ KFC entered India in 1995 and has been in midst ofcontroversies.
Authorities found that KFC’s chickens did not adhere to thePrevention of Food Adulteration Act, 1954 and exceeded the MSG (a flavour enhancing ingredient) limitsby 3 times.§ Since 2003, PETA (People for the EthicalTreatment of Animals) has been protesting KFC’s choice of poultrysuppliers worldwide. PETA have held several demonstrations, sometimes inthe home-towns of KFC management, and during 1 such instance, KFC CEO DavidNovak was soaked in fake blood by a PETA protester.§ In 2006, KFC-Europe was accused by Greenpeace forprocuring soyabean for its chicken feed from Cargill.
Cargill has been accused of growingsoya-bean crop by clearing large portions of the rainforest in Amazon.§ In 2010, KFC-Australia was accused of racial insensitivity overa TV advertisement that showed a white cricket fanhanding out fried chicken portions to appease a group of black skinned supportersfrom West Indies.§ In 2012, KFC was accused by Greenpeace of procuring paperpulp for its food packaging material from Indonesian rainforest wood. Thereafter,KFC has put a plan in place to ensure that all its suppliers providepackaging material from sustainable sources. § In December 2012, KFC was criticized in China when it was found that a goodno.
of KFC suppliers used growthhormones and excessive antibiotics onits poultry, thereby violating Chinese law.§ In 2017, KFC was fined £950,000 after 2 workers received burns due to boilinghot gravy. KFC admitted to charges of failing in its duty of care to personnel,and was ordered to pay fines of £800,000 and £150,000 by a Teesside Crown Court.§ In 2017, KFC had to pay $1900 to journalist, who was beaten up by asecurity guard of a KFC outlet in Budapest, Hungary. Protests broke outand the bad publicity pressurised KFC to act. KFC reacted by firing thesecurity guard and paid the amount to the journalist.