You have decided that your future involves buying and running a franchise business. You’ve even decided which franchise chain you want to buy from.
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 are unable to obtain conventional business loans to finance their franchise dreams are in the majority these days due to the continuing poor state of our small business loans and capital markets.
Second, and more importantly, none of this has to stop you.
Running a business (including a franchise) is about getting you and your business’s products and services out to the public: building awareness in your business and educating potential customers about what your products or services can offer.
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 expect to sell your business to potential customers?
Sell your concept – Local investors
One of the great things about franchise businesses is that, at least the well-known ones, sell themselves, to an extent.
So with your ability to sell and your franchise’s ability to sell itself, the question is, “where or to whom do you sell too?”
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 company.
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 there and sell to them. But instead of selling the benefits of your potential products and services, you should sell the investment: what the investor can expect to get out of it.
This includes informing your potential investors/partners not only about what is expected of them in terms of investment and ongoing financial support, but also about the returns they can expect to receive for that support. Now, no investor will agree to finance his deal if he thinks he will lose money, no matter how good he feels about playing alone.
And no investor will think that their money doubles every 6 months during the life of the business.
But, they hope to earn something for providing you with their 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. It not only means that the franchisor gets another franchisee (which benefits everyone in 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. good to get you through that temporary downturn (making the franchisor’s decision to approve you that much easier).
Plus, your franchise also gets one or more additional mentors who can help you run that business, from people who have been there and been through it before.
And, these local investors not only have an opportunity to feel good about giving back, but they also have an opportunity to get better returns on their money than simply putting it into low-yielding bonds, the stock market, or pathetic money market accounts (this is a selling point by the way).
Here is a success story. When I was a young business lender, I was approached by a gentleman about a $350,000 franchise loan, a loan for a new IHOP restaurant. This person (Bobby), at 40 years old, had all the credentials. He started working at an IHOP restaurant washing dishes when he was in high school. He went on 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 poor personal credit (a deciding factor 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 Reg D required Private Placement Memorandum (PPM) with the SEC, and started targeting local professionals for investment.
Long story short, Bobby was able to hire four (4) local doctors who not only financed the money he needed to build his new store, but also committed to continuing to finance 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) restaurant franchises in total.
Find local investors
The best (and only real way) to find local investors is to network, network, 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 there and out there, which means talking 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 they invest. And, if a local investor heard about a deal from someone he knows and trusts, he is 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 really rather work on growing the business), know that raising money is only a short-term event. Once it’s done, it’s done, unlike your business where you have to sell it day in and day out.