Forums: Discussions for entrepreneurs and small business.

Hi everyone, my name is Alan Forte and I am the owner of Vanity Health Clubs. I have just landed and investor who is interested in investing in my company.  I am looking for $200,000 to start franchising my company.  So, my question is what type of return on his money can I offer him on the franchise company.  He expressed interest that he want's to be in it for the long run.  I think he's see's the company's potential and know's were going to be profitable.  I have 1 current location which does GREAT and turns a great profit!

Thank you,

Alan Forte

Owner, Vanity Health Clubs

www.vanityhealthclubs.com

Hi Alan ,

First, how did you arrive at $200,000 as the amount you would need to expand?  Also, what will the $200,000 provide?  I.e., a new building and equipment.

If I were an investor, I would also want to know what your yearly sales at your existing facility averages.  Then what you anticipate your company will make a year, two years and five years down the road.  Also, how long would it take for me to recoup my investment?  Once these figures are available, I can calculate my financial risk.  Based on my risk, I can calculate what percentage of your business I should earn for my $200,000.  Maybe 25% might be fair.

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The older we get, the more excuses we make for not chasing after our dreams. But truth is, goals are attainable at any age.

The $200,000 is just to get the franchising company off the ground.  It cost's around 85 -135k to start the franchise, and the extra money is for the marketing, lawyer fees, website, extra states to get franchise license, demograhic program...  The $200k is strictly for the franchisng company.

Recoup of money would be 20 months.

From a strictly number perspective, your investor should get the percentage of the company that it will be worth after the $200,000 investment is utilized. That is, what will your company be worth once that work is all done? $1M? $5M. Then use that value to calculate a percentage as a starting point.

However, all things are negotiable and it is up to you to determine how much you are willing to give up to get this boost. Be sure you look at both the worst case results and the best case when thinking about the percentages.

Best regards,

Molly Donaldson

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Start Here. Go Far. LaunchX

Hi alanfitnessforte

In determining the return and participation for the investor's $200,000 several factors need to be considered as follows:

1) what is the nature of the investment Debt or Equity?

Generally debt has a fixed rate and preferred return while equity participates in long-term growth.

2) Is the investor participation in both the existing business or only the Franchise Business.

The return on equity depends on the risks associated with the venture. If the franchise business is untessted and risky, it attracts a higher return. If the existing business is profitable and sustainable then it may attract a lower expected return.

3) You indicated the Investor is investing for the long-term, How are you going to provide a return on investment?

Distribution, dividend, share of profits, equity appreciation to be monitized by sale or other disposition.

The above represents some of the key items to consider.

 

michael Janicki

www.janconsultinggroup.com

mjanicki@janconsultinggroup.com