Some of the largest factors holding aspiring business owners back from buying into a franchise are the initial and ongoing costs. To start, the original franchise fee can be costly, especially if you are buying into a well-known name. This fee typically ranges from $20,000 – $50,000. In addition, franchisees also have to pay the franchisor a percentage of the royalties from their revenue each month.
Franchisees are paying a premium to buy into an existing business model with strong brand recognition and a proven history of success. This leads to a lower risk of failure, with the one-year survival rate for franchises being 6.3% higher than it is for independent businesses.
Those who decide to take the plunge and invest in a franchise need to ensure that their business will appeal to investors, so they can raise additional capital to help out with the hefty costs associated with launching and running your business. We put together a list of three tips that will help you attract the right investors to make your franchise operationally successful.
1. Get Your Finances in Order
If you have a difficult time managing or providing a full view into your finances, it could be a big turn off for investors. More than anything, investors want to see a return on their money. If the information that you provide is comprehensive and demonstrates that the business can generate profit and remain scalable, the more confident they will feel investing.
A franchise performance platform can help by syncing strategic information from all other systems to centralize your key financial and operational data. By combining multiple sources of information, you know that you are getting the most accurate and comprehensive view into your finances. A franchise scorecard solution also allows you to stay organized, easily share actionable data, and make comparisons based on historical data or other benchmarks.
2. Perfect Your Business Plan & Pitch
Unlike banks, most independent investors care just as much about your vision and potential as they care about your cash flow and collateral. They want to know what the big picture is behind your business.
It’s important to get a good understanding of the industry, market size, and competition from the franchisor. Once you have a baseline understanding, you can build out a more comprehensive business plan with additional strategic information about your specific customer base and location. You’ll also want to have a plan for what the funding will be used for and how the investment will be structured.
Your 60-second pitch about the business and its potential should be designed to motivate investors to take the time to read your business plan and look into the details associated with the funding opportunity. It’s important to tell a story and communicate what makes your franchise business unique.
3. Build Your Brand
Venture capitalists and private equity firms are investing in you just as much as they are investing in your business. Before looking for funding, make sure you build your brand and share your story through social media and/or blogging.
Building a following on social networks can also help you when you begin connecting with potential investors. For example, LinkedIn can be a powerful tool for making connections and cold pitching. It may also help to establish a presence on online fundraising platforms, such as AngelList, EquityNet, and SeedFunder.
Successful brand management also requires having a constant, real-time eye on your organization’s reputation in the market and the sentiment towards how you operate. Staying up-to-date and analysing across these platforms is critical as you build awareness and position your business to grow over time.
Despite the initial cost of buying into a franchise, there is incredible opportunity and potential for success for franchisees and private equity firms alike. By perfecting your business plan, building your brand, and bringing accessible and actionable data to the forefront, you will be on the path to making your franchise much more appealing to potential investors.