Last week I had the pleasure of speaking at the 5th Annual “Franchise Capital Exchange” in Chicago. In a presentation titled, “What Makes a Deal Attractive,” I spoke to the group about my own experiences as both an investor and a franchisor. My goal was to help them understand how to make themselves attractive to the other party – and invite deals that could potentially take their businesses to the next level.
With private equity playing a crucial role in franchise growth, this was a great opportunity to share my experience with both groups at the same time.
The Six “P’s” of an Attractive Investment Deal
Here are the six aspects investors and franchisors should keep in mind when considering the merits of a deal.
Always remember that the people involved in the deal are more important than the deal itself. A Class A person can make a Class B deal a success. People are most important, you should trust the people you are in business with - and that takes time.
You need to be 100 percent invested in the deal. To make it a success, make sure to bring your time, your talent and your treasure. You can’t fake passion, it’s part of the culture and values.
Take a hard look at your product and what makes it better and more efficient. Differentiating yourself in the market is key. How is it sustainable and for how long?
Evaluate your vision and business plans closely to make sure they are both realistic and flexible. You should be able to clearly articulate what you’ve started – and where you’re going. Execution of the plan is KEY; show how you have done execution of the plan and how that continues.
How big (within reason) can your business grow? How long will it take? How many units will you have? Do the research, create a timeline for expansion and present the evidence clearly. What about competitors...how are they performing and what impact can they have?
Understand the revenue, costs and margins of each unit so you can clearly determine whether a deal will be profitable for you. Know your numbers and the “what if” scenarios too.
Lastly, a successful deal hinges on your ability to work with the right investor. Choose wisely by looking at their experience, seeing what results they’ve achieved in the past and verifying their background. Whoever you choose should have more than the funds – they should be committed to your success with a partner-like attitude and bring “smart money.”