Angel investors are continuously looking for the latest opportunities to make investments in well managed, sound, startups. Many aims towards sectors like technology, real estate, and biotech. However, there is also another opportunity that is often overlooked and that is franchise investment.
What Is A Franchise?
Mainly, a franchise is a way to purchase the benefits of an established business. In this case, you are actually formulating a new business from the ground up, but you are performing it inside the structure of an already successful model of business.
Common examples of successful franchises are restaurants like Wendy’s and McDonald’s, real estate companies like MAX or RE, and salons like Great Clips. Even though some of these are corporate players, their businesses are filled with independently owned outlets and shops in thousands or hundreds of locations.
Franchises arrive in all sizes and shapes; they are not actually standard. For instance, with some franchises, you are just buying participation, advertising, logos, and perhaps leasehold of various types of equipment. With others, you are purchasing the complete package, that includes the real estate and all the elements.
There are constant advantages also. A big one among them is marketing, which includes advertising. This is one of the main reasons for purchasing into a franchise rather than creating a business from the ground up. You are able to take benefit of the image of the franchisor and marketing reach, and even take advantage of local advertising.
Franchise Investment: Cost Of Popular Franchises
Here is where we get into the side of franchise investment. You might be able to purchase into some franchises for just a few thousand dollars. Those will be among the ones where you are getting name organization, recognition, and some limited marketing disclosure. Let us have a look at the best franchises to buy 2021.
But better-known franchises can need millions. With franchises of that level, it is not uncommon for the franchisor to offer to finance. But you are still required to come up with a large amount of the upfront investment for the purpose of your own resources. For an investment franchise example, if the primary investment is $1.5 million, you may be needed to come up with $500,000, and the franchisor will offer financing for $1 million. Here is a list of the top 10 franchises for the upcoming times. These include the best franchise to own.
- McDonald’s, between $1 million and $2.2 million
- 7-Eleven, between $38,000 and $1.1 million
- Dunkin Donuts, between $229,000 and $1.7 million
- The UPS Store, between $178,000 and $403,000
- RE/MAX LLC, between $38,000 and $225,000
- Sonic Drive-In Restaurants. Between $1.1 million and $2.4 million
- Great Clips, between $137,000 in $258,000
- Taco Bell, between $525,000 and $2.6 million
- Hardee’s, between $1.4 million and $1.9 million
- Jimmy John’s Gourmet Sandwiches, between $330,000 and $558,000
Criteria For Making Franchise Investment
Along with offering diversification in your portfolio, the features of many franchise entities align well with the criteria of investment of the angel investors. If you are aiming to invest in franchises, here are some of the tips that you should consider before starting with it.
The Chances Of A Great Return
Angel investing mainly involves more risk than other sectors of investments, so if you wish to get associated, you should have an anticipation of stronger returns to balance this risk. With franchises, there can be a higher forecast of returns because of the item 19 earnings asserts within the FDD (franchise disclosure document). This document, and especially the item 19 section, offers would-be investors and franchisees with a sensible investment return expectation.
A Solid And Experienced Team Management
A full management team with leadership qualities is a must if you are searching to invest in a business. Basically, an angel investor is making investments in people, so they require confidence that the business is in the hands of those who have the knowledge, are competent, and also trustworthy.
A Complete Business Plan
When you are investing in a business, you should need a business plan that is both complete and convincing. Items to look for are detailed marketing plans, financial projections, and specifics about the aim. Luckily, because of the nature of franchises, these forms of businesses often get high marks with respect to these items.
A Good Business Structure
While some angel investors make investments on the debit side, many investors look for minority equity ownership positions. This implies that the business has to be created to enable investment. Franchising accommodates this requirement in a relatively easy way. Based on whether the investor is relatively active or semi-passive as an owner-operator, most organic arrangements can be adjusted via an LLC (limited liability company) joined by a functioning agreement that outlines the respective distributions among other products.
The Bottom Line
Franchise investment depends on your personal conditions. Having the upfront capital is possibly the single biggest evaluating factor. There are even many lists of government franchises that you can consider. We have also mentioned some of the most profitable franchises. But even if you have enough to make the primary investment, it is better if you have other financial services. Just as you should expand when it is about investments, you should have other assets as well to go with your outsized franchise investment.