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As a responsible investor, you probably don’t put everything in a single investment vehicle but instead have a portfolio that balances risk and reward by drawing on a variety of sources. That’s the approach you should take when choosing companies to add to your business portfolio. But how do you choose? One of the core missions at my company, United Franchise Group (UFG), is acquiring businesses to invest in, and we’ve found the best course is to call on strengths that you can use in a new business.
In other words, buy what you know.
Properly managed, success breeds success. Once you’ve led one company to profitability and achieved other measures of good health, you’ll want to repeat the win. You will see new opportunities that can add more value to your company. Utilizing your strengths helps make it easier to succeed in a second or third business.
Related: Considering franchise ownership? Get started now to find your personalized list of franchises that match your lifestyle, interests and budget.
Diversify in category
Plan to create a diverse portfolio, but don’t stray from what has brought you here. Diversify within the category you’re succeeding in. For example, a successful restaurateur might want to look at other restaurants but avoid supermarkets. They’re both in the food sector but require a completely different set of skills.
At the same time, don’t buy another company that does exactly what you do. When excitement fades for that niche, your losses will run twice as deep. If you own a discount supermarket, for instance, consider a gourmet market.
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Go with your gut — for now
Investment decisions always require objective, rational thinking, but it all starts with what your gut is telling you. When you visit other businesses as a customer, what impresses you? Let your gut drive this part of the process.
A business broker can also help you evaluate your options. Look for successful niches in your industry. For example, at UFG, restaurant investors could consider our Greek food and charcuterie franchise brands, which have caught the attention of food lovers seeking healthier choices or who want to add engaging ways to snack at celebrations. Real estate and business consulting services might consider investing in one of our coworking franchises, which continues to attract professionals seeking flexibility in their workspaces.
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Now go with your brain
Once you’ve picked the type of business, it’s time to let your brain take over for your gut. Seek expert help in evaluating the various aspects of the company you’re considering, such as financial health, customer demand and operational efficiency. If you have a corporate team, call on staff from the different areas you must evaluate, including sales, operations, management and accounting. Get to know the founders of the business you’re buying and decide if anyone will be staying after you acquire it. Ask lots of questions, and if you don’t feel right about the answers or, worse, catch a misleading statement, don’t be afraid to bow out.
A lot of this due diligence can be done for you if you invest in a franchise brand, which offers reliable systems and processes, brand recognition and, if you choose the right one, marketing and training support.
The synergy of member brands is a critical factor in franchising, but it should also be a top consideration if you choose to invest in independent brands. Consider whether your businesses can share resources. Do you want them to consult with each other or remain completely separate?
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Lessons learned
In my 40 years of acquiring businesses for my company to invest in, here’s some of what I’ve learned about buying and selling brands in a portfolio:
Private equity has taken a dominant position in franchising. While it can be very good for some brands, it can be terrible for others. Go slowly here, especially if you are giving up a majority stake. Even a minority position can cause challenges. Talk to others who have done it before selling out.
It’s almost inevitable to have some regrets when making business decisions — mistakes are part of the journey. UFG has had some hurdles and challenges in buying or selling brands over the years, but we’ve always worked them out. Whatever happens, I always focus on the future and move forward — and you should, too.
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