Franchising in New England

Naomi Kooker of the Boston Business Journal reports that Massachusetts is among the top six states projected to add the most jobs in the restaurant sector this summer.

The Bay State is slated to add 22,700 jobs this summer, according to employment projections released by the National Restaurant Association Thursday. That number is up slightly from last summer when the state added 22,500 summer jobs in the sector.

“I think we’re going to have a very strong summer,” said Peter Christie, president of the Massachusetts Restaurant Association. “Summer vacation places like Cape Cod — bookings are up. I also think the weak dollar is going to be very good for international tourism. And I think (high gas prices) will keep people closer to home.”

Wendy Northcross, CEO of the Cape Cod Chamber of Commerce, confirmed that advanced summer bookings on the Cape are up from last summer, though she could not quantify it. “It’s robust in the face of the economy,” said Northcross.

While jobs on the Cape are plentiful, there is a shortage of workers there caused by the lack of H2B visas. The visas allow for temporary, legal alien workers to fill seasonal jobs then return home. An estimated 12,000 jobs will go unfulfilled due to the lack of visas.

Cape restaurants have adjusted, said Northcross, by opening later this season, curbing their hours and/or their menus.

Nationwide, eating and drinking places are projected to add 402,900 jobs during the 2008 summer season, representing a 4.2 percent increase over their March 2008 employment level.

Radio broadcaster Entercom has signed a multiyear deal with Papa Gino’s Holding Corp., the parent company of Papa Gino’s and D’Angelo, to continue the restaurant chains’ 10-year partnership with Entercom through a sponsorship of portions of the Red Sox Radio Network, the company said on Wednesday.

  As part of the new agreement, D’Angelo will present the “Starting Nine” prior to each game on the Red Sox Radio Network. The “Inside Pitch” pregame segment will be sponsored by Papa Gino’s.

Entercom New England broadcasts Boston Red Sox games on SportsRadio 850, WEEI-AM.

Mark Dubinsky, President of Dunkin Donuts Independent Franchise Owners, (DDIFO), which represents more than 1,700 member franchisee owners in 12 states. He was also CEO of his family’s 27-unit franchised network of Dunkin’ Donuts shops. NEFA member, Dubinsky wrote in the Worcester Business Journal.

10. Do Your Homework
Work for an existing franchisee for at least three months to see if you are passionate about the business.
9. Philosophy Matters
Make sure you are comfortable with the franchisor’s management team, culture, strategies and tactics.
8. Fine Print
Read and understand every word of the franchise agreement and any other documents you will be required to execute.
7. Gather A Team Of Experts
Hire competent, experienced professionals to advise you.
6. Key Disclosures
Read and understand the Franchise Disclosure Document (FDD).  For more information, check out this web site: http://www.ftc.gov/bcp/franchise/faq1.shtm.
5. Get References
Speak to at least 10 existing and 5 ex-franchisees about the pros and cons of being a franchisee.
4. Legal Reference
Understand the details and the quantity of any litigation between the franchisor and its franchisees.
3. Business Reference
Speak to the independent franchisee organization(s) (if any) and try to get any remaining questions answered.
2. Money In The Bank    
Make sure you have sufficient capital to meet all of your current and future obligations.
1.  Listen To Your Heart
Prospective franchisees must understand the business reasons why they should become a franchisee.

Andre Porter has been tapped to head the Massachusetts Office of Small Business and Entrepreneurship, said Housing and Economic development secretary Daniel O’Connell on Monday.

Porter, the former deputy director for the city of Boston’s Office of Business Development, will oversee the business development agency. He will spend the next several weeks holding small-business town meetings around the state to hear directly from owners and their unique issues and how public and private resources can be leveraged to support business growth and retention in the state.

Porter replaces Alison Berglund, who served as head of the office of Small Business and Entrepreneurship for two years. Berglund left for the private sector late last year.

The DD Independent Franchise Owners, Inc. (DDIFO), a NEFA Member and which represents the largest association of Dunkin’ Donuts franchise owners in the U.S., is announcing the creation of a new board of directors to better serve all Dunkin’ Donuts franchisees.

DDIFO President Mark Dubinsky says, “This new board, comprised of five well-respected professionals, is perfectly aligned to act in the long-term best interests of our members. We wish to thank the previous board for their many years of dedicated service and intend to ask for their input going forward.”

The new DDIFO board of directors is comprised of:

• Kevin McCarthy, Esq. - Chairman and Director. Mr. McCarthy is a franchise attorney and former senior executive with the franchisor, Dunkin’ Brands. Kevin is past Vice Chairman of NEFA.
• Brendan Van Deventer - Vice-Chairman and Director. Mr. Van Deventer is the Managing Partner of Riparian Partners, LTD., an investment banking firm in Rhode Island.
• Joseph Kimball Jr., CPA - Treasurer and Director. Mr. Kimball is a partner in the firm Sansiveri, Kimball & McNamee which currently works with Dunkin’ Donuts franchisees.
• James Coen - Clerk and Director. Mr. Coen is Executive Director of NEFA and founder of Franchise Perfection.
• Deborah Blondin – Director. Ms. Blondin is a Senior Vice President of the Franchise Finance Division of Sovereign Business Capital

Incoming board Chairman Kevin McCarthy says, “The DDIFO decision came about because they wanted to make a change for positive reasons.  They want to establish a much better communication and a productive relationship with Dunkin’ Brands.” The franchisor, McCarthy says, “is one of the premiere chains in the industry and it has a tremendous capacity to communicate respectfully and reasonably with its franchisees.”

Mark Dubinsky will continue in his role as the President of the DDIFO. Mr. Dubinsky was a 22-year franchisee and served as CEO of his family’s network of franchised Dunkin’ Donuts shops.

QSR Magazine reported that Dunkin’ Donuts is celebrating Free Iced Coffee Day from 10 a.m. to 10 p.m. next Thursday, May 15. Customers can walk into any participating Dunkin’ Donuts restaurant throughout the country and receive a free 16 oz. cup of Dunkin’ Donuts’ premium regular, Berry Berry Iced Coffee, which combines the seasonal tastes of blueberry and raspberry with Dunkin’ Donuts’ award-winning coffee, or many other delicious flavors.

The company anticipates giving away nearly 4 million cups of its award-winning iced coffee. That means:

• Dunkin’ Donuts will use more than 88 million ice cubes on Free Iced Coffee Day, and will pour approximately 31,250 gallons of cream.

• You could fill 7 Olympic-size swimming pools with the amount of coffee that will be used on Free Iced Coffee Day.

• If you lined up each cup of iced If you lined up each cup of iced coffee served on Free Iced Coffee Day lid-to-lid, the line would stretch for more than 236 miles.

• If you stack up each cup of iced coffee served on Free Iced Coffee Day, it would reach nearly 300 miles into the sky, the vantage point of a typical space shuttle orbit.

On Free Iced Coffee Day, Dunkin’ Donuts is honoring those who serve by donating $80,000 to the National Police Athletic League (NPAL) to support its Youth Leadership Program. NPAL supports more than 2 million underprivileged youth through education, sports and leadership opportunities, and stresses the importance of community service and peer leadership in more than 350 chapters across the country.

Sixteen select NPAL chapters will receive $5,000 from the Dunkin’ Donuts donation through a grant. The NPAL chapters receiving grants to fund their local Youth Leadership Program include: Atlanta, Baltimore, Bangor, Boston, Charlotte, Chicago, Cleveland, Detroit, Hartford, Las Vegas, Miami, New York, Philadelphia, Providence, Tampa/St. Petersburg, and Washington D.C.

While iced coffee sales typically spike in summer months, Dunkin’ Donuts has seen rapid growth year-round. Iced coffee is the second most frequently sold coffee product after hot coffee at Dunkin’ Donuts. According to NPD CREST data, Americans drank nearly 600 million servings of iced coffee in restaurants in 2007–a 37 percent increase from 2006. Dunkin’ Donuts sold more than 190 million servings of iced coffee in 2007, and is the number one retailer of iced coffee in America.

NEFA Member GRP Funding has come to an agreement with the Domino’s Franchise Association to become an approved vendor. GRP Funding has helped many of their franchisees secure working capital to assist in growing their businesses.

GRP Funding is a leader in the merchant cash advance industry. They specialize in short-term financing for business owners by purchasing a portion of their future credit card receivables.

For more information: Contact: Ken Corcoran at: 860-756-0199

The following Information has been provided by Barbara Arena,CIT Small Business Lending Corporation, 781-294-2244 barbara.arena@cit.com www.cit.com

SBA has decided that in light of issues raised during the meetings held across the country with lenders and CDCs, they will extend the effective date — which was to have been May 1 — by 45 days, to June 15.

Since January 29, 1999, the SBA has updated its Standard Operating Procedures (SOP) via various policy notices. Over the past several months, the SBA staff took on a massive project, attempting to incorporate over 7 years of policy notices into an updated version of the SOP, while simultaneously reducing the volume.

The modernized SOP 50-10 (5) replaces the last version and incorporates policy notices in effect through December 31, 2007. In an effort to maintain the currency of the SOP, updates are anticipated on a semi-annual basis. The hope is to eliminate sporadic policy notices. SOP 50-10 (5) is effective for loan applications received beginning June 15, 2008. The new SOP is 380 pages vs. 849 pages of the previous version.

Commercial Real Estate:

The following applies to 7(a) and 504

Appraisals may either be “complete” which details three methods of valuation (cost, income and comparable sales of similar property) or “limited” which does not use all three methods.
SBA, however, requires that at a minimum both the “cost” and “comparable sales” valuations are part of the appraisal and are the parts that are used to determine the fair market value of the property.

If the appraisal also includes an “income” valuation, this valuation is not to be used either separately or as part of any averaging of the values when identifying the real estate value to support an SBA-guaranteed loan. SBA requires a “bricks and mortar” valuation on the commercial real estate. An income valuation describes the use of the property as an investment, landlord/tenant property.

The following applies to 504 only

In order for the appraiser to identify the scope of work appropriately, the appraisal report must be requested by and prepared for the CDC. The cost may be passed on to the borrower.
Source of Equity Injection:

· Cash that is borrowed – counts only if the repayment comes from other personal loan sources other than the cash flow of the business. (The salary of the business owner does not qualify)

· Employee Stock Ownership Plans (ESOPs) and 401(k) Accounts: When an ESOP or 401(k) owns 20 percent or more of a Small Business Applicant, SBA will not require the Plan or Account to guarantee the loan if the following conditions apply:

1. The beneficiary(ies) of a 401(k) must provide his or her full unconditional personal guaranty regardless of the individual ownership interest in the applicant concern. This guaranty must be a secured guaranty if required by SBA’s existing collateral policies.
2. The members of the ESOP are not required to personally guarantee the debt.
3. The borrower cannot be an eligible passive company (EPC). (13 CRF 120.111(a)(6)) (SBA regulations require all 20 percent or more owners of an EPC to guarantee the loan and the regulation does not provide for an exception.)

Stay tuned for additional revisions and effective date updates.

The following Information has been provided by NEFA Member Barbara Arena, CIT Small Business Lending Corporation, 781-294-2244 barbara.arena@cit.com www.cit.com

Since January 29, 1999, the SBA has updated its Standard Operating Procedures (SOP) via various policy notices. Over the past several months, the SBA staff took on a massive project, attempting to incorporate over 7 years of policy notices into an updated version of the SOP, while simultaneously reducing the volume.

The modernized SOP 50-10 (5) replaces the last version and incorporates policy notices in effect through December 31, 2007. In an effort to maintain the currency (pun intended…) of the SOP, updates are anticipated on a semi-annual basis. The hope is to eliminate sporadic policy notices. SOP 50-10 (5) is effective for loan applications received beginning June 15th , 2008. The new SOP is 380 pages vs. 849 pages of the previous version.

One such clarification involves business valuations:

(i) Business Valuation

(a) Determining the value of a business is the key component to the analysis of any loan application for a change of ownership. The need for an accurate valuation is true regardless of whether the financing is structured as an asset purchase or a business purchase.

1. For loans less than $350,000, a lender may do its own valuation of the business begin sold to identify whether the seller is requiring a price that is not supported by the business’s historical performance.

2. For loans of $350,000 or more, the lender must obtain an independent business valuation from a qualified source.

(b) In addition, a lender should require as much seller-financing as possible with the seller-financing having a subordinate lien to the SBA-guaranteed loan on the business assets. A rule of thumb for the amount of seller-financing that should be required is the amount being borrowed by the buyer to finance the acquisition of intangible assets such as goodwill.

It should be noted, that when questioned in response to this modernization, SBA noted that they did not intend on changing the guidelines for business acquisitions and indicated a clarification on this issue would be forthcoming. As of the date of this notice, clarification has not been received.

A few additional updates have also been noted:

· Assisted Living Facilities are now eligible for PLP Processing

· Mini-warehouses, office suites, shopping centers, flea markets, and mobile home parks are eligible if at least 50% of income is from services provided rather than rental (passive) income.

· Loan maturity may be up to the maximum for the asset class comprising the largest percentage of the use of proceeds.

· ESOPs and 401(k) Accounts used toward the purchase of business no longer require the guaranty waiver of central office so long as the beneficiaries provide unlimited guarantees.

Additional procedural changes and “minor” changes to the 7a and 504 programs, particularly relative to appraisals and collateral will be highlighted in upcoming issues.

Information provided by Barbara Arena,CIT Small Business Lending Corporation, 781-294-2244 barbara.arena@cit.com www.cit.com

Papa Gino’s, NEFA Member and a venerable New England pizza chain, has signed an agreement with the brand’s first-ever franchisee. “We have been serving New England for over 40 years, but this agreement creates an opportunity for individual investors to become involved with our business model and allows us to grow our brand recognition,” says Anthony Padulo, Senior Vice President of Franchise Development.

Rajender and Sunita Malhotra are the first to partner with Papa Gino’s and have agreed to build three restaurants over the next three years. While the locations have not been finalized, preliminary indications suggest they will be in Beverly, Salem, and Swampscott, Massachusetts. Financial terms of the agreement were not disclosed.

The Malhotras say they’re excited about becoming the first Papa Gino’s franchisees. “Papa Gino’s has strong brand recognition in Boston and the surrounding suburbs,” Rajender says. “We saw this as a unique opportunity to become involved with an established restaurant franchise with a built-in customer base.

Based in Dedham, Massachusetts, Papa Gino’s Holding Corporation is the parent company of Papa Gino’s and D’Angelo Grilled Sandwiches. The company operates more than 360 company-owned and franchised restaurants and employs more than 5,000 people.