Private Equity and Your Franchise: Investors and Buyers
Private equity comes up a lot in franchising, both as a source of growth capital and as a buyer when owners are ready to sell. Whether you are thinking about taking on a private investor to expand, or picturing a private-equity group as the eventual buyer of your franchise, it helps to understand the trade-offs. Here are the pros and cons of private equity for franchise owners.
The upside of private investors
For many franchisees, the benefits outweigh the drawbacks. Experience is a big one: private investors have usually done this before and bring knowledge a first-, second-, or even third-time franchisee may not have. Capital is another. The chance to grow faster, add units, or upgrade operations often is not there without outside money, and a good investor can accelerate what would otherwise take years.
The trade-offs to weigh
The most common downside is control. Taking on private equity usually means giving up some say in how the business is run. For many owners the trade is worth it for the growth and the guidance, but it is a real consideration. The other is fit: find an investor whose values align with yours, so the relationship can hold up through the ups and downs of the industry.
Private equity as the buyer of your franchise
Private equity also shows up on the other side of the table, as a buyer. These are financial buyers: methodical, detail-oriented, and focused on cash flow and return rather than emotion. They can be demanding in due diligence, but they are predictable. If your numbers are strong, your systems are solid, and the franchise does not depend entirely on you, a financial buyer can be an excellent, well-capitalized option. Preparing clean financials and reducing owner dependence is exactly what makes your franchise attractive to this kind of buyer.
Frequently asked questions
What does a private equity buyer look for in a franchise?
Strong, verifiable cash flow, documented systems, growth potential, and a business that runs without heavy owner involvement. They price on the numbers, so clean financials matter.
What do I give up by taking on a private investor?
Usually some degree of control and autonomy. In exchange you gain capital and experience. Whether that trade is worth it depends on your growth goals and how well your values align.
Is selling to private equity a good idea?
It can be, especially for a well-run, well-documented franchise. Financial buyers are predictable and well-capitalized, though they do thorough due diligence, so preparation pays off.
Considering private equity for your franchise?
Whether you are raising capital or selling, preparation is everything. Talk to Franchise Sellers about your franchise, or call 800-499-4280.
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2023 IFA Franchise Economic Report
The International Franchise Association, in partnership with FRANdata, recently released its annual Franchising Economic Outlook Report. This 2023 report, which analyzes franchise performance over the previous year and forecasts the year ahead, predicts moderate growth for franchising this year. Despite current economic challenges over the last few years, franchising continues to grow, showing the power of the business model to help business owners navigate challenges ahead and continue driving economic growth.
In 2023, it is predicted that the number of franchise units will increase by 15,000 units, reaching 805,000 franchised businesses in the U.S. Franchising will add 254,000 jobs to the U.S. economy, employing approximately 8.7 million people in 2023, and generate $860.1 billion in economic output. Service-based industries and quick-service restaurants are expected to see the biggest growth among industries, with Texas, Illinois, and Florida as the top states for franchise growth.
Read more findings in the Franchise Economic report, including industry and state-by-state breakdowns here.
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Considering Buying a Franchise?
Are you considering buying a franchise? If you’ve been asking yourself questions about becoming a business owner and buying a franchise of your own, good for you! When it comes to being a franchise owner consider the following thoughts.
Structure
1. You Prefer Structure & Order to Things: Franchises rely on a proven system for their success. They’ve worked hard to perfect a roadmap to help you, as a franchisee, succeed. So if you prefer a structured environment and order, owning a franchise and having a guide may be right for you.
Teamwork
2. You Think Teamwork Makes the Dream Work: Do you love working with a team? In the franchise world collaboration isn’t just appreciated, it’s practically expected. If you enjoy being part of a team then you should consider buying a franchise.
Listening
3. You’re Good at Active Listening: As a franchise owner you will hear much feedback. This will come from your employees, your customers, and others in your franchise group. The idea of active listening is to find a mutual solution for all involved. If you’re someone who enjoys feedback and can learn and build from that, then franchising may be a good fit for you.
Determination
4. You’re Not the Quitting Type: Running a franchise is not for the faint of heart. Even with a road map for success, the start of your franchise journey will be time consuming. There will be paperwork, marketing considerations, and more. But if you’re a determined person who loves a good challenge, the franchise world is waiting!
Repetition
5. You Appreciate the Simplicity of a Good Ham Sandwich: Are you the type of person that orders the same meal at a restaurant, simply because you know you’ll be satisfied with it? Well, franchising depends on that outlook. Franchises are successful partly because of their consistency and committment to quality products. Repetition is the “secret sauce” of any good franchise.
Support
6. You Have a Strong Support System: Starting a new business can be daunting. Having a support system is a lifesaver. You’ll have several, hopefully, in the form of not just other franchisees and your franchisor, but also in your family and friends. Running a business is hard. Make sure you’ve got people around you who love you and want to see you succeed.
Ready to see what’s available? Check out our current franchise resale listings.
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