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Why Franchisees Fail

Can I speak with a franchisee?

Becoming a franchisee is a life changing decision. For most, the purchase of a franchise means transitioning out of a career, operating your own business for the first time, and investing ones hard earned savings. The good news, in virtually all scenarios, people prior to you have already made the same life changing decision.

In my opinion, the most important due-diligence step a prospective franchise owner can take is to speak with a current (and if possible a former) franchisee of the brand.

These 8 questions will help maximize your conversation with franchise owners:

1. What was your background before you became a franchise owner?

  • Importance of this question: Do I have the experience & skill set necessary to be successful?

2. Can you explain a typical day in your role of being a franchise owner? What is the most challenging part?

  •  Importance of this question: Could I do this work day in & day out?

3. (If local) Would I be able to shadow the operations of the business for a day?

  • Importance of this question: Test drive the franchise before you own it.

4. Would you be willing to discuss your financials; including project cost, revenue, EBITDA, & how long it took to break even?

  • Importance of this question: Does this ROI align with my expectations and goals?

5. What happened after you signed the Franchise Agreement?

  • Importance of this question: Does the franchisor have streamlined on-boarding processes which sets franchisees up for success?

6. What didn’t you learn in training from the franchisor that you had to learn yourself? Did you feel prepared day one to open the business?

  • Importance of the question: Will I be prepared to operate this business successfully?

7. What is one thing you know now you wish you would of known before you purchased this franchise?

  • Importance of the question: What am I missing?

8. If you had to do it all over, would you purchase this franchise again?

  • Importance of the question: Overall happiness of the franchisor/franchisee relationship. Use their experience for better or for worse to your decision making benefit.

These eight questions can be used as a cheat sheet to maximize your time speaking with current franchisees of the brands you are interested in. The desired outcome of these crucial franchise discovery calls is to receive unbiased perspectives of what it is like to become a franchisee of the brand. After a few calls, trends will start to form which will substantially influence your decision making. Carefully take into consideration all findings before you make your very own life changing decision and become a franchise owner.

Here are some other great articles which helped me formulate my opinions and should be viewed as you consider franchise opportunities:

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Ryan Rao is a Principal of Apex Franchise Development Group and is a franchise development expert who has grown multiple franchise based businesses into national and international brands. Franchising has allowed him to help individuals realize their dreams of business ownership, while permitting them to experience the independence, flexibility, and freedom that comes with being a business owner. He also serves as a franchise consultant, and is a personal growth advocate.

Follow or Connect with Ryan on LinkedIn at https://www.linkedin.com/in/ryan-rao/

Culture of Execution: The Winning Franchise Formula

When it comes to creating the winning franchise formula most small business owners think they know the ingredients. If they didn’t, they most certainly wouldn’t venture out on their own. However, according to the Bureau of Labor Statistics’ Business Employment Dynamics, about 80% of businesses will survive their first year in business. About 66% will survive their second year. Only about 50% will survive their fifth year. And, about 30% will make it to their tenth anniversary. As you can see, if everyone had the winning formula more than 30% of businesses would still be around 10 years later.

 The Franchise Concept

Because of numbers like these, more and more entrepreneurs are turning to franchising. Franchising offers a template for success. The things that business owners didn’t think about when they were formulating their plan, such as: floor plan layout and its impact on operations, documentation of all systems and processes for consistent training and operations, and the impact of a well thought marketing plan on business and brand development are a handful of the things that make a franchise relationship so valuable. A strong franchise brand will have already tested and refined all aspects of the business model, saving the entrepreneur the headaches of doing it themselves. Not to forget saving the entrepreneur from making many potentially costly mistakes.

 The Issue

Ideally, all the entrepreneur must do after engaging in a franchise relationship is effectively implement the standards.  However, that is many times easier said than done. Success in franchising only goes as far as the franchisee’s willingness to adhere to the established systems and standards. There is a reason why some franchise owners in similar markets with similar demographics succeed and others fail. If we did an autopsy of failed franchise businesses I am quite confident that we’d find that the cause of death was rooted in executing the formula.

 The Failed Business Autopsy Report

  • Time: Typically, at the start of the relationship every new franchisee is all in with the franchisor’s systems and procedures. They begin their new endeavor with enthusiasm and great optimism. They implement their training like they were taught. However, as time passes many begin to loosely apply their learning and become relaxed with implementation of the brand standards. Then, shortcuts creep in, knowing a better way rears its ugly head and before you know it, the proven methods begin to be replaced by “a better way”. Unfortunately for many, the better way isn’t better at all. What lured them to franchising in the first place is replaced by loosely structured systems and poor execution. Inevitably, this leads to lost sales, never reaching full potential and lost earnings.
  • Consistency and Accountability: For any business to be successful everyone must be held accountable for results, including the franchisee. Failing to consistently hold everyone accountable to the standards of operation is the first step toward failure. When a franchisee starts to relax on the marketing routine, operational standards and financial fundamentals, the system begins to take on a new standard. That standard usually involves less than great service, average product, below average cost containment, and a less than stellar brand image. The typical result is a decline in sales, which directly effects revenue.
  • Execution: Business is about getting things done and doing them the way they were meant to be done. Failing to get things done leads to stagnation and stagnation leads to status quo. Status quo leads to becoming average at best. No one in today’s world, which is full of many great alternatives, is going to pay for average. Once you become average you become a memory. When there are many options to choose from you must stay top of mind. Those that are top of mind are the highest performers. The highest performers execute.

Commit to the System

Most entrepreneurs invest in a franchise because the franchise has a record of success, a strong brand, a refined training program, ongoing operational support, marketing assistance, real estate site selection assistance, purchasing power, and established systems in place that help lower risk. Therefore, it would appear to be in the best interest of the franchisee to implement the tried and true systems of the franchisor.

If you are considering a franchise as your business template, do yourself a favor and implement their systems, procedures and brand standards consistently and correctly. The franchisor made it to where they are because they’ve successfully done it over and over again. Therefore, their way is the proven way. You’re paying for their knowledge, expertise, and experience. Do yourself a favor and run the business the way they say it should be run. Develop a culture of execution and insist on consistently doing things the way they are supposed to be done. Do this and the odds of your business becoming one of the 30% that make it to the 10 year mark goes up significanlty. Then, you’ll be positioned to renew that franchise agreement so you can do it all over again.

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Randy Stepp is a business and franchise development professional who’s purpose is to help business owners realize their dreams of independence and freedom.

Follow or Connect with Randy on Linked In at https://www.linkedin.com/in/randystepp

So, you want to franchise your business but are you ready?

Franchising can be an attractive vehicle for businesses to achieve scale.

Ask yourself these seven questions before you consider franchising your business.

1. Can my concept support franchising?

  • Is your concept able to support a royalty structure? If your current business cannot achieve 20%+ EBITDA without royalty and marketing fees included in the P&L franchising may not be for you.
  • How simple is your concept to operate? Can you train your concept to others? How will you train this concept to others?
  • Franchising should follow the “KISS” method. In franchising, the goal is duplication.
  • The best franchisors are uncompromising when it comes to brand consistency and they are willing to spend the time and money necessary to ensure their standards are strictly enforced.

2. Can my management team pull this off?

  • Does your management team have franchise experience? Franchising is a different mindset compared to operating corporate units.
  • The strength of your franchise system will be measured by the strength of your corporate infrastructure.
  • Does your team have unified core values and a singular vision? Can they maintain your culture as you grow?
  • Do you know the inflexion points and positions needed to properly support your franchisees?
  • Do you have a strategic plan?

3. Do I have enough capital?

  • Even the best management team and a fantastic concept cannot begin franchising undercapitalized.
  • Franchising takes a substantial upfront investment before returns are reaped. There are critical points in the lifecycle of every franchisor where investment in corporate infrastructure is outpaced by incoming royalty streams.
  • Franchising can be very profitable but understand it is a long road for most franchisors to reach profitability.

4. Are my legal documents correct?

  • Franchise law is very specialized and your documents must be constructed by someone who specializes in franchise law.
  • Attempting a do it yourself approach in regards to franchise legal documents is a sure path to failure and legal trouble.

5. How will I sell franchises?

  • According to a recent IFA conference there are more than 2,000 active Franchise systems under 20 units and almost 3,000 Franchise systems under 50 units. Why is that the case? Because selling franchises is hard and the business model may not support the efforts.
  • Do you know who your ideal franchise candidate is? Where will you find these candidates? What is your sales process to award a franchise?
  • According to Franchise Update Magazine, the average cost to recruit one franchisee in 2010 was $13,019. That means franchisors that want to add 20 new franchisees must expect to invest $260,380. What is your plan and budget in this area?

6. Who is my demographic?

  • A common denominator of successful businesses is their scientific understanding of their customer. The consumer’s makeup or demographic of any business is constantly evolving but the business needs to apply a data driven and scientific approach to real estate selection.
  • Does your business understand your demographic? Do you have a real estate model? How will you ensure location consistency? How will you support your franchisees with selecting real estate?

7. Do I have the right supply chain partner?

  • Can my current supply chain support franchising?
  • Do I have the right partner to maintain consistency of my product? Regionally? Nationally?

These seven questions are crucial starting points for any business to consider before launching franchising. “Franchising can be a low cost means of growth but it is by no means a no cost means of growth” (Entrepreneur). Make sure your business is prepared before you begin to take on franchisees.

Here are some other great articles which helped me formulate my opinions and should be viewed as you consider franchising your business:

https://www.entrepreneur.com/article/204998

https://www.allbusiness.com/7-biggest-challenges-to-growing-a-franchise-system-16647575-1.html

https://www.entrepreneur.com/article/252592

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Ryan Rao is a Principal of Apex Franchise Development Group and is a franchise development expert who has grown multiple franchise based businesses into national and international brands. Franchising has allowed him to help individuals realize their dreams of business ownership, while permitting them to experience the independence, flexibility, and freedom that comes with being a business owner. He also serves as a franchise consultant, and is a personal growth advocate.

Follow or Connect with Ryan on LinkedIn at https://www.linkedin.com/in/ryan-rao/

The Franchise Partnership Puzzle: Avoiding Disillusion

The modern franchising model can be traced back to Isaac Singer, founder of the I.M. Singer and Company, manufacturer of sewing machines.  Singer and his business partners sold rights to businesspeople who were interested in selling his sewing machines within specific geographical areas. This system served as a win-win for both the company and the businesspeople that chose to invest. The company generated revenue to fund its business endeavors and the businesspeople had a business of their own, selling a product much in demand.

Because of Singer’s modern day franchising model many business people have found a great opportunity to not only bring an idea to life through franchise and licensing agreements, but also give entrepreneurs like themselves an opportunity to own a piece of the pie. While franchising is a great opportunity for an entrepreneur to own their own business, not all franchise opportunities are the same. A potential franchisee would be wise to evaluate franchise opportunities against the following components that serve to makeup those things that will be key in determining whether a strong business relationship develops.

Key Components

  • Vetting – From inquiry to ownership a franchisee should experience a rigorous vetting process. It is through this process that a strong relationship begins to develop. It is also through this process that the franchisor and the franchisee should learn a lot about each other. While it may be the desire of the franchisee to fly through the process, a thorough process is better in the long run for everyone. After all, it is better to know up front if the fit is right then to find out after thousands of dollars and hundreds of hours have been invested. A weak vetting process can be an indication of the strength of other processes. A strong franchisor is after a strong long-term relationship. A weak franchisor is after the franchisee’s money.
  • Training – Many times a franchisee’s success can be attributed to their level of preparedness from the start. Part of that preparation takes place long before the doors open for business. Strong training on operational systems and processes is critical to the implementation of the franchisor’s business model. The same holds true for strong business practices. A franchisor worth its weight will make sure a franchisee has all the tools necessary for success. The franchisor’s primary goal should be setting up the franchisee for long-term growth and an even lengthier relationship.
  • Multi-Unit Offering – The ability to engage in multi-units is beneficial for both the franchisee and the franchisor. The franchisee has the option to compound wealth growth, while the franchisor can engage with fewer franchisees as they work to reach their unit goals. A franchisor who adds many one unit franchisors may be after the money more than the shared interest of exponential business growth.
  • Territorial Protection – A franchise agreement should clearly describe the territory covered by the agreement. Vague and uncertain language does not help the franchisee. A strong franchisor wants clarity and understanding in all business dealings. Vague language in a Franchise Disclosure Document (FDD) or Franchise Agreement (FA) should be considered intentional and a red flag.
  • Rebate Sharing – Almost every franchisor has some form of a rebate deal with distributors and suppliers. A strong franchisor will not only disclose these, but many will share a portion of those rebates as franchisees acquire multiple units. Again, a strong franchisor has a shared success and wealth building mindset.
  • Renewal Terms – Clear and fair renewal terms protect both the franchisor and the franchisee. 180-day notification of intent to renew is the ideal. Stated increases in royalty fees upon renewal of the agreement are not an ideal situation for the franchisee. While it sounds great to know what your increase will be, there is usually no value added with the increase. An increase in royalty fee at renewal typically puts more money in the franchisor’s pocket and less in the franchisees. In most cases the increase will not result in an increase in service. A strong franchisor will grow revenue through their support of the franchisee.
  • Franchise Agreement Renewal – The franchise agreement should state whether the franchisee has the option of rolling over the current agreement or state that the current agreement will be replaced by a new agreement. Either way, the franchisee needs to know which it is going to be.
  • Alternate Channels of Distribution – While territories may be mapped out and clearly stated, it is important to know whether the franchisor has the right to enter alternative channels of distribution within your territory. Alternative channels could be concert venues, amusement parks, shopping malls, air ports, etc. While these venues may not directly impact your target market, they could take away opportunities for expansion within your existing territory. A strong franchisor will make sure that this is clearly known up front.
  • Gift Cards – While gift cards don’t seem like a big deal, they can be a revenue boost or drain. Gift cards purchased in one location and redeemed in another can be a boon for one location and a drain for another. Clarifying the redemption system upfront may help to avoid future issues. Outside of the gross revenue they generate, a franchisor should not be taking a cut from the sale of gift cards.
  • Advertising Fund – Almost all franchisors require the franchisee to contribute to an advertising fund. This fund is different than the local advertising requirements placed upon the franchisee. The advertising fund is used by the franchisor to fund marketing related activities for the franchise group. This may mean that some markets see more advertising than others, as the marketing tends to follow market penetration. A strong franchisee will provide audited financials of the advertising fund for the franchisees to review.
  • Curable Versus Non-Curable Events – Every franchisee needs to understand what makes up a curable and non-curable franchise violations. Curable violations are usually minor and immediately fixable. Non-Curable offenses need to be clearly stated. A strong franchisor is not franchise agreement termination happy. Again, strong franchisors are interested in franchisee success. They will work to rectify situations and not allow situations to ruin the relationship. However, they will terminate franchise agreements for failures that jeopardize the brand and put the franchisor and other franchisees at risk. This level of leadership is important. Doing business with a franchisor that actively protects the brand is crucial to the long term success of the franchisor and their franchisee partners.
  • Accountability – Accountability is something many franchisees struggle with. A strong franchisor will hold franchisees accountable for operating their business within the established standards. A franchisor that does not hold franchisees accountable is not concerned about brand and product integrity. That is a major red flag. The best franchisors are sticklers for adherence to the systems and processes they have developed. They know what it takes to succeed. They also know that franchisee failure is usually connected to the franchisee’s failure to operate their business within the brand standards. While a franchisee may not like accountability, they need it. It is neither good nor acceptable to have failing franchisees. Bad and failing franchisees harm the brand and place all franchisees at risk.

Avoid Dissolution

Selecting the right franchisor is not an easy task for the potential franchisee. However, it’s also not an easy task for the franchisor. If it is easy for either party, then neither is doing their due diligence. A franchisee and franchisor relationship is a long-term commitment. It should be treated in much the same way as selecting a partner for life. There are some behaviors that can be tolerated and lived with. However, there are others that cannot. It is the responsibility of each party to identify behaviors and determine which are acceptable and which are not. Like a marriage, franchisees and franchisors that don’t go through the due diligence process usually end up divorced from one another. That situation is neither good nor healthy for anyone.

Questions to ask before you purchase a Franchise

When investigating franchises to purchase it is vitally important you ask the right questions to representatives from the brand.

Here are seven questions to keep in mind when conducting due-diligence on franchise opportunities:

1. What makes your brand better than the competition?

– As a potential franchisee and business operator you need to know and believe in the competitive advantages your brand claims to offer.

2. What are the costs associated with your franchise?

– When purchasing any business the numbers are everything. Get a grip on startup and ongoing costs of the franchise system. Ex: Franchise Fee, Build out Costs, Royalty, & Marketing Fund.

3. Can you explain the training program & ongoing support?

– The reason to purchase a franchise is the operational “playbook” the brand offers. Without a sophisticated training program and documented systems the franchise offers little benefits.

4. Do you offer assistance with real estate?

– Location is one of the most important factors in any business, it is extremely important to leverage the knowledge and experience of the Franchisor.

5. What is my protective area?

– Understand where you will have the right and protected area to conduct business under the brand.

6. Can I see the FDD?

– The Franchise Disclosure Document (FDD) will lend information on the history of the company, executives, ownership structure, any litigation’s/bankruptcies, fees associated, assistance/training, territory, trademarks/patents, financial performance representations (be careful with these), and financial statements of the Franchisor.

– Under the Franchise Rule, which is enforced by the Federal Trade Commission (FTC), a prospective franchisee must receive the Franchisor’s FDD at least 14 days before they are asked to sign any contract or pay any money to the Franchisor.

7. Is there a current Franchisee I can speak with?

– The Franchisee can provide you with insight the franchise sales representative cannot. The Franchisee is able to speak about the numbers related to the performance of the business, discuss support the Franchisor provides them, and offer unbiased reviews of what it is like to be a franchisee. Maximize your time speaking with current franchisees.

These 7 questions are a starting point for investigating franchise opportunities. It is important to conduct your own research and speak with multiple brands before deciding which franchise to purchase.

A franchise is very much a marriage (at least for ten years- in most cases) make sure to “date around” before proposing the brand of your dreams.

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Ryan Rao is a Principal of Apex Franchise Development Group and is a franchise development expert who has grown multiple franchise based businesses into national and international brands. Franchising has allowed him to help individuals realize their dreams of business ownership, while permitting them to experience the independence, flexibility, and freedom that comes with being a business owner. He also serves as a franchise consultant, and is a personal growth advocate.

Follow or Connect with Ryan on LinkedIn at https://www.linkedin.com/in/ryan-rao/

Thinking About Owning A Franchise? Do Your Due Diligence Before Committing

Owning your own business is a dream many people have. The freedom to be your own boss and to control your own destiny is a strong lure, especially in an ever-changing business environment where loyalty and commitment seem to be a thing of the past.

There are many reasons people decide to step out on their own and leave the employ of others. Some are following a dream, while others may be frustrated with the direction their career has taken them. No matter what the reason, franchise ownership may be one of the considerations people make when deciding to go it alone. Interestingly, the draw of a franchise, as opposed to starting from scratch, is that you don’t have to go it alone. A good franchise opportunity should be as close as possible to a turn key operation. And, if you pick the right franchise success should be all but guaranteed. That is as long as you are disciplined, do your due diligence and fact finding, and properly implement the established systems.

To Fail or Not to Fail

When a franchise fails it usually because the franchisee failed. Franchisees either failed to do their due diligence up front (which includes a professional review of the Franchise Disclosure Document), failed to properly implement the systems and processes that the franchisor has established, or they fail to attend to the factors that contribute to success, like local store marketing, customer experience, operational excellence, and attention to quality. These failures are many times blamed on the franchisor when in fact they are more appropriately placed at the feet of the franchisee.

Consider This…

If you are contemplating stepping out on your own and investing in a franchise, consider the following before you go all in. Remember, it’s better to go slow before you go fast and furious into franchise ownership. If you do slow it down, you may thank yourself later. If you don’t, you may hate yourself in the morning. Either way, going slowly through the process is almost never a bad idea.

10 Things You Need to Understand Before Signing on The Dotted Line

  1. Product Offering and the target customer: ask the franchisor to describe their products in detail, who they view as their target market, and what, if any, product offerings are in development.
  2. The “ideal” demographic: ask the franchisor to share the ideal demographics for a successful location. If they can’t give that to you then you should be concerned. If you still like the franchise, then do your own research and visit franchise locations in the region you are considering. Conduct interviews of owners and general managers so that you might uncover what the ideal demographic may be. If the franchisor does have the data, and they should, ask how they arrived at the data and what the regression analysis indicate.
  3. Development area demographics: Ask the franchisor if they will help you determine the demographics of the geographic area you are interested in and determine the size and density of the target population.
  4. Operating costs: ask the franchisor if they can help you determine the cost of rent, employees, and supplies/materials for the area you are considering and compare that with anticipated pricing for your product. Then, ask them if they have a pro forma so that you can try to determine margins using data for your area. No two areas are the same, even if they are only 30 minutes apart. Excessively high rent and employee costs can destroy a franchise. Then, go interview other franchisees and find out how they are performing. You need to confirm what you think the possibilities are. DO NOT let your emotions make this decision.
  5. Support: ask about all the services and support you will receive from the corporate office. Much of this information is contained in the Franchise Disclosure Document.  However, asking the right questions will provide greater detail and a better understanding. This will better prepare you for opening and prevent misunderstandings in the future.
  6. The best of the best: ask for a detailed description of the characteristics and behaviors of the most successful franchises. There are things that the best franchises religiously do that the less successful franchises do not. Find out what they are and then map a plan for making those characteristics a part of your franchise.
  7. 5-7 things: ask the franchisor what 5-7 things have been determined to be those things that result in increased revenue and customer satisfaction.  You may hear things like “engaging the customer when they walk through the door”, “offering to enroll customers in our rewards program”, or “addressing customers by name at checkout, which is gained from their credit card or through our rewards system”. Knowing what those 5-7 things are says a lot about the franchisor and how well they know their operations and customer.
  8. Marketing (yours and theirs) – ask them to explain what makes up corporate marketing and what makes up local marketing and what costs might be hidden. The two are not the same. Know where the money is spent and where you need to spend money locally. A satellite franchise may realize little to no corporate marketing until other locations are developed nearby. You need to know this up front.
  9. Their opinion: ask their opinion about where they would like to locate a franchise and why. Maybe you’ll find that their location is better than yours. It also tells you how much work they’ve done preparing for growth. It also says a lot about the direction they are heading.
  10. Strategic vision: find out the strategic vision of the corporation. Ask about their vision, corporate values, goals, growth plans, product development plans, and mission statement. Quality organizations will have a well thought and detailed strategy that maps out the direction of the organization. A vibrant corporate brand will only help make your local brand more attractive.

Know It All

You can’t learn everything you need to know in a few meetings. However, by asking the right questions you can learn a lot about the organization and what you can expect in the future. Remember, the benefit of owning a franchise is that someone else has figured out the success formula. While franchise ownership does not guarantee success, if you do your due diligence and implement their systems you should be better positioned than trying to go it alone. Never forget that your success or failure is directly tied to your willingness do what needs to be done to make it happen. Due diligence is the first step in that process.

Randy Stepp is a business and franchise development consultant who’s purpose is to help business owners realize their dreams of independence and freedom.

Follow or Connect with Randy on LinkedIn at https://www.linkedin.com/in/randystepp

Evaluating Investment Opportunities

As Romeo’s Pizza and Pizzafire have been accelerating in growth we have had the opportunity to structure alternative investments for a number of individuals. The appetite of the investment can be drilled down to 3 points.  The answer to these three points are a necessity when considering the investment.

1. Evaluating the Leadership Team

“Leadership is the capacity to translate vision into reality.” – Warren Bennis

Does the Leadership team have the capacity to pull this off? The only way to evaluate the leadership team is to ask them questions.

Questions to consider:

  • Who are the founders and key team members?
  • What relevant experience does the team have?
  • What key additions to the team are needed?
  • Why is the team uniquely capable to execute the company’s business plan?
  • What motivates the founders?

 

2. Evaluating the Product or Service

“The more alike two products are, the more important their differences become.” Regis McKenna

Will there be a demand for this product or service today and in the future?

Questions to consider:

  • Why do customers care about your product or service?
  • What are the major milestones thus far?
  • What are the key differentiated features of your product or service?
  • What have you learned from early versions of the product or service?
  • Provide an explanation of the product or service.
  • What are the two or three key features you plan to add?
  • How will the company market its product or service?

 

 3. Risk and Reward

“If you risk nothing, then you risk everything.” — Geena Davis

Does the risk of the proposed investment match the reward?

Questions to consider:

  • What are the company’s three-year projections?
  • What are the key assumptions underlying your projections?
  • How much equity and debt has the company raised; what is the capitalization structure?
  • What future equity or debt financing will be necessary?
  • How much of a stock option pool is being set aside for employees?
  • What are your unit economics?
  • What are the factors that limit faster growth?
  • What are the key metrics that the management team focuses on?
  • How much is being raised in this round?
  • Will existing investors participate in the round?
  • What is the planned use of proceeds from this round?
  • What milestones will the financing get you to?
  • What is the likely exit – IPO or M&A?
  • When do you see the exit happening?
  • Who will be the likely acquirers?
  • How will valuation of an exit be determined given market comparable?
  • What structure is the payback for investors?

Investing in a company can be a tremendously exciting time for both the investor and growing business. The prospective investor needs to keep a few factors in mind when considering the investment. Can the leadership team pull this off? Will this product or service be demanded today and in the future? Does the risk equal the reward?

Happy investing!

Here are some great links on investing:

http://www.investmentnews.com/article/20140527/BLOG09/140529947/4-considerations-when-evaluating-alts

http://www.forbes.com/sites/allbusiness/2013/06/10/65-questions-venture-capitalists-will-ask-startups/

________________

Ryan Rao is a Principal of Apex Franchise Development Group and is a franchise development expert who has grown multiple franchise based businesses into national and international brands. Franchising has allowed him to help individuals realize their dreams of business ownership, while permitting them to experience the independence, flexibility, and freedom that comes with being a business owner. He also serves as a franchise consultant, and is a personal growth advocate.

Follow or Connect with Ryan on LinkedIn at https://www.linkedin.com/in/ryan-rao/