This article, by my counterpart Cindy Rayfield, in Denver Colorado, is brilliant and spot on when it comes to our philosophy of being honest with a client about their finances.
My Company, FranNet Carolina, specializes in placing clients into franchise ownership. We use an exclusive assessment and face to face meetings to help match clients to the businesses that make sense and that will get them to where they want to go, both professionally and personally. To date we have placed over 500 folks in business. But for everyone we place in business, 2 – 3 more don’t buy a business for a variety of reasons. Some of these clients are folks that we have had to advise against business ownership because of their finances. AND, we have no problem doing that.
Our clients depend on us for good advice in searching for the right business and that includes an assessment of their financial ability to purchase a business. In truth, nearly everyone we see wants to own their own business. But, business ownership isn’t for everybody for a variety of reasons, including financial capacity. We feel it is our responsibility to advise a client when their balance sheet is on the low end of what will be needed to sustain a purchase.
Buying and starting a business takes time and money. If a client represents a family’s primary source of income and is entering business ownership and leaving the corporate world altogether, then understanding their ability to get through the start – up phase to profitability is of critical importance. When buying a franchise there are three components of cost to consider, the franchise fee, the hard cost to build out the business (computers, leasehold improvements, signs etc.) and the projected working capital needed to get to operating profitability. The first two components are relatively easy to project and include in pro-forma financials. But projecting accurate working capital needs is a bit trickier. Franchise companies try to give a fair estimate of working capital needs based on their franchisees’ collective experience. But it is still hard to hit that accurate number. It is always a good idea to build in some cushion and then you are rewarded if you don’t need it. Now, some of our clients are buying a franchise as an investment, with intentions of working as a semi-absentee owner. They may be still gainfully employed with a nice income and just want to build a business to add to their investment portfolio. While this form of purchase is done all the time, it is none the less our responsibility to give these clients the same advice any other clients.
So, if we make a client mad by telling them that a business purchase would tax their finances too much and put their family at risk, we are ok with that. We would rather have an angry client now than one that failed in a business we advised them to look at when they were too tight on finances.
Enjoy this article by Cindy!
I Made Someone Very Angry Today
I don’t like to do it. I really don’t.
I don’t want to tell a client they don’t have enough money to invest in a business, but that’s what happened today. I had to tell a client (or now ex-client) that she didn’t have a high enough net worth to invest in a business. She was very offended that I would tell her that. I would LOVE it if I could help anyone and everyone who wanted to buy a business, but I can’t.
When someone wants to work with me to help them find a franchise match, I start by having them complete a Personal Franchise Assessment. It can take 20 to 30 minutes to complete the profile and it asks a lot of questions relating to personality, likes, dislikes, career background – and the all important financials. Yes, in the end, it all comes down to money. (Please see my article on “The Money Talk – How to Know if You Have Enough to Invest in a Franchise.”)
Believe me when I say this – knowing how much money a client has or doesn’t have for a business is a good thing! Here’s why…
Knowing There Can and Will be Cash Flow Ups and Downs
Did you know one of the top reasons for business failure is undercapitalization? That’s a fancy term for no money and no cash flow to support the business. Here’s a great infographic that explains it.
Franchisors know this. Banks know this. People who have been in business longer than a day know this. It can be difficult for someone who has never had a business to understand that running a business takes more than simple sweat equity. Businesses and lenders don’t care how dedicated and hardworking someone is. Owners need money to get through the early times when the business is not making money.
As a seasoned advisor to my clients (10 years of good advice I might add), I have to let my clients know if they don’t have the funds to get through the tough times – in a start up, a resale business, or a franchise. It doesn’t matter what type of business it is. Cash flow is king and some days it can be up and some days it can be down, but you have ride the bull to win the prize.
Knowing Prevents the Ostrich Syndrome
It’s so easy going around thinking you have money when you really don’t. I’ve seen it time and time again. I have to get a handle on my client’s net worth, for their own sake. I’m saving them from themselves when we can have a reasonable conversation about their net worth and what it means.
Those pesky financial questions are in my Personal Franchise Assessment so I can help my clients with this part. I consider it a gift to them. I take my client’s head out of the sand, for just a little while, so they can have a real and honest look at their financial situation. Sometimes it’s great, and sometimes it’s terrible. But we all need to know, even if we don’t want to hear it. It grounds us and offers a starting point.
Knowing if You Are Wasting Your Time – For Now
No one wants to waste their time. The ex-client I angered today felt like she wasted her time spending 20 minutes completing my Personal Franchise Assessment. I know I saved her time and maybe some heartache by telling her she didn’t have the capital to do any type of business – right now. I happen to think the knowledge gained in FranNet’s science based profile is worth the effort, but that’s just me.
So today my ex-client’s financials don’t look very good, but in a few years, when her debt gets paid off, or when the big bonus arrives, or she gets that corporate buy out, or she has saved enough, or her financial picture changes… that’s when the magic can happen. My ex-client may be in a much better place. Lots of people come back to me later on, and then we can have some fun. I’ll look forward to that.
Today, I’d like to think I did my ex-client a favor. Do you think someday she may even thank me?
I doubt it. I made her really mad.
Full article link here https://franchisematchmakers.com/2017/09/i-made-someone-very-angry-today/