9 tips – How to reduce risks when choosing a franchise?, and how not to lose your money.

9 Tips for Safe Project Investments: Minimize Risk, Maximize Returns

And in this article I will tell you how investors choose projects for investment. And I will share with you 9 tips – how to reduce risks when choosing a project, and how not to lose your money.

The advice is suitable for all projects – be it a franchise, a ready-made business or an investment in an existing business. My advice is real experience, not theory read in books.

1. The founder – CEO – lacks 100% focus in one area of ​​business

Building a strong and sustainable business is not a field to jump to. There is constant competition.

 Ultimately, companies bid and compete with each other for a finite amount of money in the market.

 If an entrepreneur is not 100% involved in the business and is unfocused on different areas, over time he will lose his market share to competitors. Why?

It’s simple: with the same “entrepreneurial intelligence,” competitors with a focus on one area will simply work more man-hours and outperform an unfocused entrepreneur. 

There are 2 franchise companies. In one, the founder is only involved in building a franchise network, and in the other, he also sells iPhones and comes up with an IT startup. 

Different markets, tasks, but one person is responsible for everything. I think you understand. You can’t sit on 2 chairs, and it’s not really possible to sit on 3-4. My advice is don’t vote for this with your money.

2. Personal incompatibility with the team

Before investing money in a project, meet and communicate with the project team. If at this stage you are rejected by them and don’t like them as individuals, then there will be “more wood.” 

They noticed chameleonism, sycophancy, and promised three boxes – if only you would transfer the money – straight into the basket. As they say, “don’t build a business with assholes.” Maybe, of course, the project team is not bad, but only you look to the south, and they look to the north. 

Don’t expect people to change. No, they won’t change! If you haven’t found a common language, or you think that these are sweet-voiced scammers, put off this deal, you will be calmer.

3. Damaged company reputation

This is where it gets very interesting. 

Debts, courts, negative reviews from investors, franchisees, contractors, employees. Worrying? 

Do you expect honest behavior from you? Hopes are in vain. Drop this idea.

4. The team and founder are stubborn as sheep.

The main thing here is not to confuse. An entrepreneur must constantly overcome obstacles, and perseverance with determination is a necessary quality in business. 

But the inability to admit mistakes made and repeating them is terrible. 

In a growing business, where the situation is constantly changing, new restrictions appear every 3-6 months – you need to adapt and listen to those around you. Listen to the market, franchisees, employees, competitors, investors. 

If this is not the case, if for the founder only one opinion and one plan is correct – that is his original opinion and his original plan = refuse the deal. Sooner or later, something will go wrong, and a person simply will not adapt to new realities.

5. Unprofessional project team

Business is run by specific people. A strong team will be able to find a way out of the most insoluble problem. Weak – she won’t be able to do anything even where the “land is fertile.” Look at 2 key indicators: motivation + competence. 

Here is more detail: are all the competencies (needed to achieve the set goals) present in the project, or, for example, does it consist only of IT specialists, and there is no sales department there; What kind of business experience does the team have (what projects have they created, what results have been achieved, what problems have been overcome). 

About motivation: is the team motivated to achieve its stated goals or is it in its comfort zone? Are there any co-owners of the company among the team? How do they make money? What motivates them?

6. The founder-CEO has less than 50% of the business shares

If the founders have less than 50% of the shares, this is an obvious reason to think about it, since business is about difficulties and overcoming them. Will the founder have this as his main goal if his stake is 10%, or can he give in? 

Will he consider the project HIS business, and not perceive it as a job for hire? But a business runs on the energy of an entrepreneur; whether you have it depends on whether you will recoup your investment or not. 

Or, for example, the founders include a number of people with 30%+ shares who do nothing for the business, but strive to manage the process.

7. No adequate financial accounting

I personally try not to buy a “pig in a poke”. When the project does not have qualified management accounting, only tax reporting done by a freelance accountant.

 When there is no reporting on dynamics for the last 2-3 years, while the project may be 4 or 5 years old, it is immediately thrown into the firebox.

8. Inability to plan long-term and inability to scale

The team’s inability to plan long-term, even at the level of ideas – well, sometimes people don’t know what they will do next. 

And it also happens that a business that attracts investment is not scalable, no matter how much money you invest in it.

9. Lack of investor orientation

The project does not build a productive dialogue with the investor: it does not provide answers to the questions posed clearly, on time and in all details. Often, “money seekers” disappear after clarifying questions. Either the questions are “unpleasant” or the money is not needed)

In the end, I will say this: to find one worthy project, you need to look at 200. This means that “there is no money” … but there are even fewer profitable projects. What statistics do you have, and what are the criteria for selecting businesses?