Franchises and small businesses across a wide variety of industries have been plagued by a lack of funding and startup cash. In fact, the International Franchise Association predicts that by the end of 2010, there will be a nationwide lending gap of $3.4 billion for franchised businesses. This distressing trend has caused potential franchisees to seek funding through alternative channels.
In the past, aspiring franchisees may have turned to savings, retirement plans, home equity loans or other banks and lending institutions, but the recession has sent many of these individuals in search of financial partners.
There are many types of partners to choose from: silent, family, friends and private equity. However, regardless of the type, franchisees should make sure they do not rush into anything. Before making any choices, there are a few questions individuals should ask themselves.
First, prospective franchisees should consider what their personal management style is and how much, if any, control they are willing to relinquish to another individual.
"He understood - in a way that many entrepreneurs never do - that the key to growth was recognizing his weaknesses and correcting them through the right strategic financial partnership," Steve Hutchinson, a managing partner at Weiss, Peck & Greer, told Inc. Magazine, describing businessman Steve Geller's approach to finding a partner.
"The right financial partnership was essential," Geller added. "But money alone just wouldn't have cut it."
Once a partner is found, the work isn't done, Franchising.com explains. Franchisees should always "hope for the best and plan for the worst." One of the biggest mistakes new franchisees make is to enter a partnership without fully understanding what this will mean, which can lead to struggles for control, strategy or division, as well as an unclear division of responsibilities.
The Web site suggests that franchisees even consider entering into a business "pre-nup" - a document that explains exactly what happens if things go wrong and one individual decides to dissolve the partnership.
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