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The franchisee's financial 4: Top tips to get investors to show you the money (Part 2 of a series on restaurant financial issues)

In yesterday's initial part of this series, readers got expert advise on equipment leasing options and how they can help with your overall food service operations. Today's article, takes a deeper look at the work most restaurateurs must make sure they accomplish before approaching any outside sources for financing their dreams.

September 13, 2016 by S.A. Whitehead — Food Editor, Net World Media Group

Food service brands need great franchisees every bit as much as franchisees need great brands. But sometimes, really great restaurateurs are not the best money people. Anthony Byrd probably knows that as well as anybody. 

As executive vice president of franchise financing at Direct Connect Ventures, Byrd has worked with more than 300 clients over the last 15 years, turning ideas into enterprises for everything from a single food truck to a multimillion-dollar full-service restaurant. Many of these same clients later bring in his company when vetting a potential franchisee to ensure that the prospect is as wonderful on paper as they seem in person. 

We recently bounced a few questions off Byrd that we figured franchisees-in-waiting would have when approaching "the money guys" to help finance their foray into food service.

"A strong balance sheet will get you in the vault of just about any bank. Too often we come to a screeching halt when we are provided with a balance sheet that states little to no cash on hand."                                                  -Anthony Byrd, Direct Connect Ventures EVP

The average franchisee typically comes to Direct Connect Ventures seeking approximately $475,000, depending on the venture and their planned level of involvement in it.

That’s a lot of cash, and the firm take this business very seriously, applying lessons learned over the years about who succeeds, who fails, and why. And while there is no such thing as a typical franchisee or loan, Byrd said that there are always four important things to keep in mind if you’re hoping to get someone else to invest in your restaurant dreams. 

1. Get the cash flowing before you take one step forward
It’s not easy, Byrd said, but if a franchisee can't show a balance sheet with a healthy cash flow, they are going to get sent back empty-handed every time they approach a potential financier.  

"By far the biggest mistake is when one uses their own cash," he told this website in an interview. "They might do so because they don’t want any debt, or for the speed of securing the equipment. Both are big mistakes."  

"A business owner must hold on to as much of their own cash as possible to retain strength in their personal and business balance sheet. A strong balance sheet will get you in the vault of just about any bank. Too often we come to a screeching halt when we are provided with a balance sheet that states little to no cash on hand — this actually happens more times than you might think. Attempting to avoid debt is great, but only in some cases."

2. Know thyself
Before taking the first step toward obtaining any type of lending, take a good hard look at your own financial image. While some debt is OK — particularly in the early stages of business ownership — businesses' books must show that they are on firm financial footing, Byrd said. Again, this means positive cash flow. If you’ve got that kind of stability and can show it in your financial paperwork, opportunity will knock. 

3. Tap into outside expertise
Even the savviest restaurateur can't know everything. Tap into the many sources of free expert advice out there, including everything from the Service Corps of Retired Executives to local restaurant associations, LinkedIn groups, and just plain ol’ friends in the business. 

"Don’t go at it alone," Byrd said. "A very small group of professionals who work in the field of helping entrepreneurs arrive financially safe must be your best friends. There is a science in preparing to start a business and to become successful in business.  … You must surround yourself with intelligent individuals who know what you don’t know."

4. Slow down
This could be a key rule for every aspect of the hurried, ultra-jam-packed lives we lead today. Everybody and everything is moving so quickly that mistakes are made more easily. In the business of owning a restaurant, this can mean financial ruin. Byrd advises anyone preparing for this financial test and investment to "Take your time and think things through. The old saying, 'Haste makes waste,' holds very, very true.The resulting waste from being hasty could cost you your restaurant and whatever else goes along with it."

This is the second and final part of a series on restaurant financing. If you are considering equipment leasing, click here to read the previous story, which offers expert tips on how best to investigate equipment leasing options. 

About S.A. Whitehead

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Pizza Marketplace and QSRweb editor Shelly Whitehead is a former newspaper and TV reporter with an affinity for telling stories about the people and innovative thinking behind great brands.