You have decided that your future involves buying and running a franchise business. You’ve even decided which franchise chain you want to buy into.
However, you talk to the franchisor, your local banks, and private franchise lenders only to find that you can’t get the capital (money) you need to accomplish all of this.
For the vast majority of franchises, you will need to find ways to finance the purchase of the franchise, the construction of the franchise, including the necessary goods and equipment, as well as initial and ongoing working capital to cover your day-to-day labor costs. , marketing, inventory or supplies. .
But if you can’t get the capital you need through financing from traditional sources like banks, SBA loans, retirement funds, franchise programs, and private franchise lenders, where do you turn now? also?
Financing your franchise when all else fails
First things first: know that you are not alone in your inability to obtain traditional financing. In fact, those who can’t get conventional business loans to finance their franchise dreams are the majority these days due to the continued poor state of our small business lending and capital markets.
Second, and most important, none of this has to stop you.
Running a business (including franchising) is all about getting yourself and your business’s products and services out there in the public: building awareness in your company and education about what your products or services can offer to potential customers.
Therefore, the success of your business depends on your ability to sell that business, sell it and its products to customers, and then deliver them.
And raising money to buy or promote your franchise is no different. If you can’t sell your business concept and potential to potential funders, then how do you hope to sell your business to prospective clients?
Sell your concept – Local investors
One of the best things about franchise businesses is that, at least the most well-known ones sell themselves, to a degree.
So with your ability to sell and your franchise’s ability to sell itself, the question is, “Where or who do you sell to?”
And the answer is local investors, essentially anyone and everyone who will listen to you and your story.
This is why:
There are many entrepreneurs and other professionals in each and every city in this nation who have found their own success and want to give back; Give back by helping other business owners find their own success.
There are doctors, lawyers, accountants, and other business professionals who love to invest in local businesses in their own communities. Now, these may or may not be accredited investors and it doesn’t really matter. What matters is that they have money to spare and are willing to invest in your business.
Also, most of these individual investors are constantly looking for new places to invest, which makes their job of selling much easier.
So the idea is to go out and sell to them. But instead of selling the benefits of your potential products and services, you need to sell the investment: what the investor can expect to get out of it.
This includes informing your prospective investors/partners not only of what is expected of them in terms of investment and continued financial support, but also of the returns they can expect to receive from that support. Now, no investor will agree to finance his deal if he thinks he’ll lose money, no matter how good he feels about playing it alone.
And no investor will think that they double their money every 6 months for the life of the business.
But, they expect to earn something for providing you with your hard-earned capital. So let them know (honestly) what to expect and see how many want to get on board.
And getting money to start and run your franchise isn’t the only benefit.
In fact, franchisors tend to like pocket investors, partners, co-managers, or whatever you want to call them. Not only does it mean that the franchisor gets another franchisee (which benefits everyone within the system), but also that if the business has a bad seasonal month (which all businesses have from time to time), that business can go back to business. money. well to get you through that temporary downturn (making the franchisor’s decision to approve you that much easier).
In addition, your franchise also gets one or more additional mentors who can help you run that business, from people who have been there and been there before.
And, these local investors not only have the opportunity to feel good about giving back, but they also have the opportunity to get better returns on their money than just putting it into low-yielding bonds, the stock market, or pathetic money market accounts (this It’s a point of sale by the way).
Here is a success story. When I was a young business lender, a gentleman approached me about a $350,000 franchise loan, a loan for a new IHOP restaurant. This person (Bobby), at 40, had all the credentials. He started working at an IHOP restaurant washing dishes when he was in high school. He went from dishwasher to waiter to cook to shift manager to general manager and had been the general manager of his particular IHOP for over 7 years, 7 years in which that restaurant saw one of its highest levels of revenue growth in its long history.
However, Bobby also had bad personal credit (a deal breaker when looking for a business loan) and no money for a down payment (required for a loan).
But, he had done his research and found a perfect location for a new IHOP and got that location through the franchisor.
However, Bobby was unable to obtain a business loan from anyone.
So, we started discussing other options and ended up putting together a simple Private Place Memorandum (PPM), required under Reg D with the SEC, and started targeting local investment professionals.
In a nutshell, Bobby was able to hire four (4) local doctors who not only funded the money he needed to build his new store, but also committed to continue funding the restaurant when needed.
Again, long story short, Bobby went out and sold himself and his idea and ended up bypassing traditional financing to get the capital he needed. Bobby currently owns and operates (with his partners) seven (7) total restaurant franchises.
Find local investors
The best (and only real way) to find local investors is to network, network, and network.
This could mean finding and attending local civic and professional events in and around your area (your chamber of commerce should have an up-to-date list), as well as joining and attending local civic or social clubs. You can attend any and all events, public or private, that you can in your area. Or are you just knocking on doors?
The idea here is to get you, your name, and your business concept out and about, which means speaking to everyone who will listen and even those who won’t.
The reason is that, most likely, the people you talk to are not the ones who end up investing in you, but the ones who pass on your deal to the other investors who will.
So you should look for local gatekeepers: professionals like CPAs, lawyers, and other business owners who 1) might invest or 2) are more likely to know the people who invest. And, if a local investor heard about a deal from someone he knows and trusts, he’s more inclined to listen to that particular deal.
So if you believe that you can be successful in business and that your success will only come from your ability to sell that business, then go out and start selling your business as an investment. And while no one likes to spend time raising money (I’d rather really work on growing the business), know that raising money is only a short-term event. Once done, it’s done, unlike your business where you have to sell it day after day.
