About 18 months ago I had two separate conversations, one with a franchisor founder, the other with a private equity firm. They each lamented the other's lack of understanding of their needs. The franchisor lamented that the capital markets did not understand the dynamics of franchising, and their evaluation methods, reporting requirements and valuation methodologies did not fit the sector. The private equity director expressed frustration at the lack of investment readiness of many franchise companies, and the difficulty of assessing the value of and managing companies where most assets were intangible.
They were both right. Entrepreneurial businesses do need to be cut a bit of slack in the non-critical areas, as otherwise they will become bureaucratic rather than entrepreneurial. Management needs to be focused on running the business, not just reporting and governance. But at the same time entrepreneurs need to make their businesses genuinely investment ready, and capable of being accountable.
It is currently a great time for franchise companies to take on equity partners. There is plenty of available capital, and low deal flow. So you will get the attention you deserve. But you need to be investment ready. This means having a strong management team locked in place, good governance and compliance systems, a clear vision and business plan, good reporting and a well articulated story about future prospects. Most franchise systems fall down in the areas of governance and compliance, as they consider them nice to have rather than critical. But for investors, they are critical. We can help put the right governance and compliance systems in place and have you investment ready.
And you need to talk to the right people. Our clients have told us that they receive regular approaches from private equity people and intermediaries who claim to be able to raise capital, and have been burnt by the time wasting experience. As a consequence we have spent the past few years seeking out and qualifying the best people. So if you would like to take advantage of these times to secure expansion capital, talk to us first. We will arrange an introduction to people who understand franchising and will not waste your time.
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