Panelists Offer Insights into How Investment Professionals Evaluate Franchise Systems
On day two of Springboard, conference participants heard from a panel of investment professionals, accountants, and franchise operators eager to share their expertise on franchise-specific financial matters. “For what do private equity groups and banks look when evaluating a franchise as an investment opportunity?” asked panel moderator John Goldasich, of Arlington Capital Advisors. The work that goes into a transaction can prove long and difficult, according to Rob Sharkey, CFO of Senior Helpers, which is why it’s so imperative for the franchisor to put its best foot forward early in the courtship. Kevin Wilson, CEO of Buzz Franchise Brands, added that potential investors love to see franchisors take advantage of analytics tools to better identify and understand business drivers. Sharkey and Wilson agreed that investors care at least asmuch about the business’ roadmap as they do its industry, management team, and brand. Sharkey added, “They’re buying your success and your management, but they’re also buying your roadmap—your plan to get your business where you want it to go. How do you plan to keep growing the business?”
What else do investors want to see? Tim Seiber of FranFund explained that every franchisor should want its early franchisees to be financial rockstars. “Your first twenty franchisees need to be your best.” Why? First, the overall health of the system depends in large part on the success of your franchisees. Second, said Seiber, banks will go to franchisees before they make lending decisions regarding the franchisor. For these reasons, it’s critical for franchisors to think long and hard about who they want to run their franchised units. Kevin Wilson spoke from his own experience with the Mosquito Joe brand: “We did whatever was in our power to help our franchisees.” But how can the franchisor invest so much time and money in franchisee selection and assistance and also achieve rapid growth?Franchisors that focus too much on growing quickly tend to neglect critical pieces, like the importance of developing a sustainable business model. That’s why, according to Meade, franchisors should adopt plans of disciplined growth. “If you don’t have a viable business with solid economics, you’re going to be in a world of pain,” she warned.
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