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Franchises to Investors:“Pick Me, Pick Me!”
June 2007 Franchising World
Make your company the obvious choice for investors without breaking the bank. By David Woods It doesn’t matter if it’s their first full-time position out of college or a well-deserved promotion at a company they have been with for years, the first day at a new job is a nerve-wracking experience. When that new job is with a reputable company, the ante is upped even more. Starting a new job at a struggling, established company, however, is in a category all its own. If a franchise company is in a similar situation, it’s essential to bring aboard some new investors. To do that, evaluations and changes on every level of the company are needed. For any company in a slump, it’s most helpful to begin by evaluating the management team. Most companies have a core of really good people who are very loyal and often know what needs to be done to make a company perform to the best of its ability. Existing teams have a lot of history, but sometimes it’s almost easier to start a new situation than repair one that’s badly damaged. As a leader, one must do what’s best for the team, not necessarily the individual. With this mentality, the company is able to get a clean start by bringing in new team members whose vision is more in line with the direction the company wants to take. If a company is franchised, that is the next issue to be tackled. Take a look at franchisees and determine their status. Are they profitable? Struggling? Just getting by? The more franchisees a company has, the more likely it is that a troubled franchisee will slip through the cracks. By evaluating each franchisee, one is able to see who really has a vested interest in the company’s success and who shouldn’t have been sold a franchise to begin with. If the odds are slanted more toward the latter, temporarily halting franchising efforts may be in the best interest of the company. It may come as a surprise to some, especially if franchising is how a company initially grew, but it will give the company a chance to distinguish the dedicated from the delinquent. Keeping up employee morale may sound like a minuscule factor when compared to the overhaul a company is undergoing, but doing so will aid the turnaround progress immensely. The only way for a company to be successful is if its team is working toward a common goal. In the promotional-products industry, most of the people are very independent and creative. As long as the franchise system is honest and open with them, treats them fairly and listens to what they have to say, success is sure to follow. If it’s possible, look into relocating the company headquarters. Depending on the region in which the company is based, such factors as taxes, leases and mortgages will vary. The more rural the location, the less those amounts will affect the business. Once the company begins to profit again, it could move its headquarters, but in the age of e-mail and wireless communication, location doesn’t necessarily correlate with success.
1. Honesty is the Best Policy
2. Keep Your Eyes on the Prize
3. Map it Out
4. Bring the A-Team
5. Strength in Numbers
6. Stay Flexible
7. Choose Wisely
8. No Surprises
David Woods is president and CEO of Adventures in Advertising. He can be reached at 920-886-3700 or dwoods@aiacorporation.com.
The most critical point in dealing with investors is integrity, so be sure everything that is said is true. Point out strengths and weaknesses, the opportunities, as well as the risks. Professional investors are used to dealing with problems and issues, but a business will quickly lose trust if it is perceived as being untrustworthy or less than honest. The good ones will take a pass.
Keeping the focus on profitability is a key objective. The ultimate value of a business, and the investor’s investment, is driven by profitability. Don’t let egos, the desire to be Number One, introducing new products or anything else get in the way of that. This may require some tough decisions, but the franchise system will be respected for it.
Professional investors want to see a logical, well-thought out plan written and presented to them. Plans can always change as events unfold and a company can learn more, but if the franchise firm can’t show them where it is planning to go, it is unlikely investors will want to make the journey with the system.
Showcase the management team. Building a strong team is the sign of a good leader. Professional investors will be impressed if an organization has developed a solid team that works well together and will be more inclined to work with that company.
Be sure to have carefully prepared and accurate financial statements. Thoroughly understand them and be able to intelligently talk about them. If a franchise company doesn’t have the capability to do this within, hire a high-quality CPA firm to assist. Accurate and reliable financials are the foundation of sound financing.
The best strategy is to develop several different investor groups that have interest in the company. Decide which issues are most important and what the company is willing to give up. In the first rounds of discussions, one will learn a lot and see what the opportunities are. This provides time to evaluate the investors, focus on the things considered most important, and get the best overall deal. Remain flexible, as it is unlikely anyone will get everything that they wish. Company representatives will also have an opportunity to get to know each group to decide who fits best with the company’s style and culture.
Select a partner carefully, as one would a spouse. Like marriage, these deals are often easy to get in to and very difficult to get out of. A little more time spent on the front end may save real agony after the deal is done. Check the investor’s references carefully. Ask to speak with the CEOs of other companies they have invested in. Any hesitation with offering references should be interpreted as a real red flag.
As the financing process is completed, be sure to keep the potential investors fully aware of any changes, positive or negative. No one likes surprises, especially unpleasant surprises, so keep an open line of communication. Once the deal is done, be sure there is frequent, open and honest communication. This might take the form of formal board meetings, monthly operational reviews, weekly updates from the CEO or all of these options, as appropriate. In a new relationship, it is important to build confidence through frequent interactions. An experienced investor should request these contacts. If they do not, volunteer. Don’t be uncomfortable with detailed analysis and questioning, an experienced investor can be a key factor in a company’s success. They will have a different viewpoint than operating managers, and can often strengthen the management team.
