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
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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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