In California and across the nation, business entrepreneurs who start their own companies often have to map out their own plans of action when it comes to acquiring capital, dealing with investors and growing their business.
However, someone who buys into a franchise and deals with all the franchise law involved is just as much of an entrepreneur, even though they are taking a course of action that has been planned out to some degree.
Franchises are simply another way to acquire property and manage a business. Whether a start-up or a franchise, investors are looking for diversification of their funds. Although they still invest traditionally in property and bonds, they are turning to other avenues to create cash flow, and one of those avenues is franchises. When considering a franchise, one will most likely assess the team, income flow and location.
An investor will want a team with some experience and background in the field. This is especially important for the co-founder. For example, in one scenario, one partner had started a busy restaurant while the other partner had a successful history of real estate development. The combined experience of the pair attracted a few investors. The investor will also want to know the income level of the franchise and the amount of operating capital. They generally like to see a free cash flow of about 10 percent of income so that the business has some flexibility and a cushion for emergencies.
Finally, as in all real estate transactions, location is a key consideration when investing in a franchise. Sometimes, the places close to home can be the most attractive and will require the assessment of traffic, competition and growth in the area. Deciding to invest in a franchise can be a daunting proposition. A business and commercial law attorney might be able to help clients understand and work through the details of franchise law.
Source: Upstart Business Journal, "3 musts for franchise founders seeking capital", Elliot Schneier, June 28, 2013