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How to Finance a Pinkberry Franchise

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by Kahala Brands or any of its partners or subsidiaries. Information provided in this article is accurate as of the date of publishing.

Pinkberry is a frozen yogurt chain founded in Los Angeles in 2005. Known for its tangy flavors, it now operates more than 260 stores across 20 countries. The company is currently taking applications from potential franchisees based in the U.S. and internationally.

When you buy a franchise, you’ll participate in a training program and have access to corporate marketing and operations staff for support during and after startup.

Pinkberry was acquired in 2015 by franchising company Kahala Brands, which also owns Cold Stone Creamery and Blimpie. In 2016, Kahala Brands was acquired by MTY Food Group Inc. which operates almost 6,000 franchise locations across a wide variety of brands. MTY Food Group Inc. reported 2018 U.S. and international revenue of $86 million from franchise operations, not including Canada, a 5% increase from the previous year.

Costs of buying a Pinkberry franchise

  • Initial franchise fee: $35,000
  • Estimated initial investment: As low as $316,340

Pinkberry declined to provide a total initial investment figure, but Franchise Direct puts the range between $316,340 and $597,050, a cost that’s in line with competitors such as TCBY and lower than other franchise opportunities.

You’ll be required to find real estate for the franchise, but Pinkberry says it will provide support during the process. Stores are generally between 400 and 1,500 square feet. Real estate costs will vary depending on your location and the size of the store.

It’s important to evaluate your personal financial circumstances to determine how much money you’ll need to  cover your basic, nonbusiness expenses like housing, insurance, utilities and savings, in the first few years as a franchise owner.

Costs of owning a Pinkberry franchise

  • Royalty fee: 6% of gross sales
  • U.S. marketing fee: 2% of gross sales
  • Local advertising fee: 2% of gross sales

These monthly fees are in the midrange compared with other franchises. They’re in line with Cold Stone Creamery, which charges a royalty fee of 6% of gross sales and an advertising fee of 3% of gross sales. Pinkberry’s fees are slightly lower than Subway’s: Subway charges franchisees 8% of gross sales in royalty fees and 4.5% in advertising fees. McDonald’s, on the other hand, charges a 4% service fee, plus rent.

Again, Pinkberry franchisees are responsible for any ongoing real estate costs. It’s unclear from the company website how much franchisees will pay in inventory, furnishings or equipment costs.

Becoming a Pinkberry franchise

In order to become a Pinkberry franchisee, you must have liquid assets of at least $100,000 — meaning you have that much available in cash upon application — and a minimum net worth of $250,000. This is comparable with rival Tutti Frutti, which requires $150,000 in liquid assets.

You must also be able to access credit. We’ll talk more financing requirements, below.

To apply to open a Pinkberry franchise, you’ll first fill out an online inquiry form, either for a U.S. or international location. Pinkberry staff will then evaluate your application based on the following criteria:

  • Retail or leadership background
  • Whether you meet the financial requirements
  • Interest in Pinkberry as a brand

Read the FDD. If you move on to the next step, you’ll then schedule a phone call with a company representative. Next, you’ll receive a franchise disclosure document (FDD) that provides more detail about the required initial investment and your obligations as a franchise owner. The FDD is a legal document required by the Federal Trade Commission. Take a close look at this document to make sure you’re comfortable with the terms of franchise ownership. Federal regulations state that you have at least 14 days to review it before signing a contract.

If you decide to move forward, you’ll pay the franchise fee and sign a franchise agreement. Your franchise license agreement typically lasts for 10 years, and can be renewed for another 15 years at the company’s discretion.

You’ll then attend a five-day in-person training at Pinkberry headquarters in Scottsdale, Ariz. Pinkberry provides guidance in coordinating daily tasks like employee scheduling, operating frozen yogurt machines, finding real estate for the franchise and setting up the new location.

Is a Pinkberry franchise right for you?

While franchising gives you the chance to run a business with a larger corporation’s support and existing brand identity, it also means giving up some control when managing the business. Take time to familiarize yourself with the day-to-day reality of operating a franchise, and whether your skills and personality are suited to it.

The franchise disclosure document may include a list of the company’s other franchisees in your area, along with contact information, which means you can get in touch to learn more about their experiences. Ask about expected sales in your region, challenges they’ve encountered and any advice they wish they’d had when they were starting out.

The large initial investment of money and time is also worth deep consideration. Assess not only whether you have the money to afford the required startup fees, but if you have enough to live on until the business begins to make a profit. Make sure you can maintain an emergency fund to cover unexpected nonbusiness expenses, like car repair, home maintenance and unforeseen medical bills. Consider how you’ll continue to save for other goals, too, like buying a house, retirement or your child’s college education. Running a business may be a major aspiration for you, but it’s likely not the only one. Weigh the importance of buying a franchise with your current and future financial needs.

The Federal Trade Commission and the U.S. Small Business Administration offer resources that help potential franchisees assess their options.

How to finance a Pinkberry franchise

You’ll be required to show a certain amount of liquid assets initially, and to pay upfront fees before getting started. But if you can’t cover ongoing costs with your personal reserves, it’s possible to get a loan to finance certain costs associated with a franchise purchase. Lenders may even be more likely to work with you since you’re not starting a business from scratch and have the strength of an established brand behind you.

A lender will typically look at your personal credit score, particularly if you don’t already run a profitable business, and at the franchise’s potential for profit in your area. It may also require collateral, or an asset you own that the lender could seize if you don’t repay the loan as agreed.

When you’re ready to apply for financing, your options include:

  • Bank loans: Some franchisers provide in-house financing, but it’s not clear if this is an option with Pinkberry. Turning to commercial lenders should be your first step when looking for funding. It’s best to seek out a financial institution that has a specialty franchise financing program. You may be required to demonstrate a certain amount of industry experience or run more than one location to be approved for particular loans, or to put up collateral, which can be taken away if you fall behind on payments.
  • SBA loans: Banks and credit unions also provide loans guaranteed by the U.S. Small Business Administration. Pinkberry franchises are eligible for these.

    There are two primary types of SBA loans available to franchisees: 7(a) loans and 504/CDC loans. Most 7(a) loans can be made for up to $5 million, and range from 10 years for equipment, working capital or inventory loans to 25 years for real estate loans. While it’s possible to negotiate interest rates with the lender, the SBA sets maximum rates, which can be either fixed or variable. 504/CDC loans are available for expanding or modernizing a business, but not for other purposes, like working capital or inventory.

    Use the SBA’s Lender Match tool to find SBA-backed lenders. Before applying, prepare a business plan and make sure you’re clear on how much funding you need, how you plan to pay it back, what you’ll use it for and how comfortable you are potentially backing the loan with collateral.

The bottom line

If owning a business has long been a dream of yours, buying a franchise presents the opportunity to step into an existing business with support from a corporation.

But it may not be a slam-dunk financial move. Since you’re required to show personal liquidity and cover many costs yourself, it’s crucial to make sure that you’re ready to take on the financial responsibility of franchising.

Take a candid assessment of your personal savings and appetite for risk. How will you bounce back if the franchise doesn’t perform as expected? Do you have the wherewithal, financially and emotionally, to jump in to a new venture that may take time to turn profitable?

Along with bolstering your credit, work on building your savings — particularly a robust emergency fund — before considering buying a franchise. With limited information on the Pinkberry website, it will be important to talk to other Pinkberry franchise owners, read its financial disclosure document carefully and research the frozen yogurt market and Pinkberry’s strength as a brand. Keep tabs on news releases about the company and evaluate your own interest in working as an ambassador for it.

In order to spend your workday serving customers and growing your business, it will be crucial for you to have a deep interest in the brand. As a franchise owner, make sure you feel excited about the opportunity to be a piece of Pinkberry’s story, and that it’s a company that can help you meet your own entrepreneurship goals, too.

 

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