Investors in Franchising

Franchising is changing! Up until the last few years, a Franchise business has generally been run by an owner-operator making sure that the business is performing, and that the staff are following the systems and processes set out in the Operations Manual by the franchisor.  By being close to the ground, and working in the business franchisees are the reason why franchising has always been so successful… but times they are a-changing.

For a few years now we have been seeing a slant towards Investors buying franchises and putting managers in place to run the business for them. As this practice grows, more and more investors are buying a range of franchises and building their own business portfolios.  The Entrepreneur Visa is certainly bringing more and more investors from overseas and many of these are looking to invest in a franchise.  To begin with, Franchisors were sceptical; would this work, will the business grow in the same way? I guess to a certain extent it’s being tested, as any new and innovative process should be.

With any business you need the leader to be taking the business in the right direction with the team following closely behind them so, there is an argument that this can be the franchisee or a good manager. One of the downsides to investors coming into a franchise group is that they are normally all about the bottom line! If the franchisee doesn’t have passion or enthusiasm for the business it tends not to grow to its full potential! Don’t get me wrong, it will do well but, putting the right team in place will make a difference. The question that Franchisors ask is “can investors find managers who really believe in the product or service”

We receive lots of calls from people who have invested large amounts of money in a franchise and after 6 months it’s not making them the return on investment that they want out of it! This happens for a number of reasons, poor recruitment practice being the main one! The difficulty is that when someone buys an existing business they are looking at the historical performance, not potential! If they wanted to buy on potential they would buy a cold start. Selling a franchise business with no history is very difficult unless it’s a really well-established brand with no greenfield areas available.

The Food & Beverage Sector has had multi-brand franchisee investors for some time now but, that doesn’t mean it will work with every brand. Some brands need to take a more hands-on approach to the business, which an investor would not offer.  We all know that just because they have the money and they can fog up a piece of glass doesn’t make them the perfect fit for that franchise. There are interesting times ahead and I for one am really curious to see how this will pan out…

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