ReportWire

Tag: Buying / Investing in Business

  • How to Prepare Your Portfolio for a Market Downturn With Real Assets

    How to Prepare Your Portfolio for a Market Downturn With Real Assets

    [ad_1]

    Opinions expressed by Entrepreneur contributors are their own.

    Forecasters are growing increasingly confident that a large-scale economic downturn is imminent. In a recent Bankrate survey, economists placed a 65% chance of a recession in 2023. Meanwhile, a mid-November American Association of Individual Investors survey showed nearly twice as many investors predict that the stock market will go down in the next six months than those who think it will rebound.

    One of the latest economic watchers to sound the alarm is Bloomberg, whose forecast models show a 100% chance of a recession. All this is to say that it’s nearly impossible to know exactly when a global recession will begin — or how long it will last.

    But while past performance does not guarantee future results, historical data can help investors predict how certain assets might hold up in times of turmoil. As we head into the New Year, here’s why you might want to consider real assets to help safeguard your portfolio from the uncertainty ahead.

    Related: 7 Investment Strategies to Follow During a Crisis

    Portfolio diversification

    Historically speaking, stocks and bonds tend to have a negative correlation with each other, meaning if stocks take a turn, bonds should still hold their value and vice versa. Typically, the two act as a hedge against one another. That’s not necessarily the case in today’s environment.

    Following the Fed’s decision to begin raising interest rates, coupled with growing fears of a potential recession, both stocks and bonds have experienced massive sell-offs this year. As a result, the values of both assets have dropped in tandem; year-to-date, the S&P 500 is down nearly 18% while the Bloomberg U.S. Aggregate Bond Index has surrendered about 13%.

    As two of the most common asset classes gear up to finish the year with net losses — which would be the first time since 1969 — traditional portfolios may be in for a painful drawdown.

    Across the board, investors are increasingly looking for non-correlated assets to help cushion their portfolios in times of volatility.

    Real assets, such as real estate, infrastructure and farmland, have historically low or negative correlations to traditional stocks and bonds, as well as to each other, meaning they are not often exposed to speculative trading in public markets. In the last three decades, farmland, for example, has had a -0.06 correlation to stocks and -0.24 to bonds, according to research from my own firm, FarmTogether.

    As a result, these assets can offer welcome diversification for investors looking to create distance between their portfolios and the markets.

    Capital preservation

    For nearly 30 years, real assets have provided similar or higher average annual returns than stocks, and with much lower volatility, resulting in historically higher risk-adjusted returns. From 1991 to 2021, average annual real estate returns had a standard deviation of 7.73%, while S&P 500’s was over 16%. Meanwhile, farmland’s standard deviation was just 6.75%.

    This stability is largely driven by a host of factors, including real assets’ intrinsic value, comparatively lower level of uncertainty around future cash flows and long-term structural trends driving values upward. The demand for necessities, like shelter, food and energy, for example, is inelastic, meaning it tends to remain consistent throughout the year. In turn, the value of these assets is not likely to experience swings like those seen with the markets.

    During the 2008 Global Financial Crisis, the Dow Jones dropped 54%. By comparison, gold values actually increased in value by 4%. Today, despite stocks and bonds both showing negative returns this year, the NCREIF Real Estate and Farmland indices have returned around 9% and 6% year to date, respectively.

    In addition to their physical value, many real assets have the potential to deliver passive income through operating or rental income. Global real estate has historically generated an annual cash yield of 3.8%, while infrastructure investments have yielded 3.3%. Farmland cash receipts from the sale of agricultural commodities are forecast to be up $91.7 billion in 2022, to $525 billion, a 21.2% increase from last year.

    Related: How Entrepreneur Millionaires Prepare for a Recession

    Hedge against inflation

    While inflation cooled to 7.7% in October, the inflation rate is not projected to return to the Fed’s 2% target until the end of 2025, with some econometric models still showing 3%+ inflation through 2024. With many signs pointing to continued inflation, investors may find refuge in real assets.

    The value of real assets is ultimately derived from their physical characteristics, meaning they’re more likely to retain long-term value than other, more traditional investments.

    But this unique quality of real assets is even more attractive when you combine the limited supply of natural resources with the rising demand from a growing population, which just topped 8 billion people last month. With stable supply-demand dynamics, real assets are well-positioned to increase in value year after year.

    Also, because real asset returns are inherently tied to commodity prices, which tend to move in lockstep with inflation, these investments have had a historically positive relationship to inflation indices like the Consumer Price Index (CPI). Simply put, when the CPI rises, so too should the value of your investment; over the last 20 years, real assets have historically outperformed traditional investments in inflationary environments.

    Preparing for a potential recession

    In an increasingly uncertain market, real assets can present an attractive opportunity for investors in 2023 and beyond. By expanding into real assets, investors have the potential to help spread overall investment risk, generate historically attractive returns and help hedge against persistent inflation.

    And thanks to the rise of real asset investment managers in recent years, investors now have access to a wide variety of investment channels and diverse opportunities.

    Related: What to Expect from the Markets in a Recession

    [ad_2]

    Artem Milinchuk

    Source link

  • 6 Overlooked Investment Opportunities in Commercial Real Estate

    6 Overlooked Investment Opportunities in Commercial Real Estate

    [ad_1]

    Opinions expressed by Entrepreneur contributors are their own.

    In commercial real estate, smart owners exploit every available opportunity to maximize their net operating income (NOI) and create new, leverageable equity. Over time, small changes can generate millions of dollars in cash flow and added value, which will be critically beneficial as you grow your CRE portfolio.

    Since transacting my first deal at age 18, I’ve built an 18-year track record of success as a professional CRE investor with the help and guidance of mentors who are legends in our business. Here are some of my favorite and most effective insider tips to help boost your numbers.

    Related: Tap Into the Wealth Potential of Commercial Real Estate With These 5 Tips

    1. ATMs

    Nearly every type of property has an area of 24 square feet that can be carved out with minor modifications. If you own property that has any commercial frontage or is located in a heavily trafficked pedestrian area, consider creating space for an ATM.

    In most markets in the U.S., average ATM space will typically lease for $500-$1,400 per month (as of the date of this publication) and requires an area of approximately 4’x6′. That is at least $6,000 in annual income for 24 square feet (or $250 per square foot).

    In areas with heavy pedestrian traffic, an ATM lease could bring $1,200-$1,400 per month, translating to an equity increase of up to $420,000. Talk to your local bank about placing an ATM in your location. Property owners may also choose to install an ATM machine of their own and collect fees on cash withdrawals, but such an operation requires hands-on management.

    2. Vending machines

    While the cash flow may seem negligible, vending machines can add a surprising equity boost to a property’s bottom line. Newer, more automated machines with card readers are more desirable. It’s easier to track income and profit with credit-debit purchases than with cash.

    You can either purchase machines or lease them. Monthly leases can begin at around $50 per month. For most products, profit is around 50%. With two machines, one for snacks and one for soft drinks, you could expect to sell approximately 300 items per month at an average profit of $0.75 per item. That’s a gross income of $225 per month and a net income of $125 per month (minus the $100 lease). While a net annual income of $1,500 seems hardly worth the effort, that’s a potential net equity gain of $20,000 for the property.

    There are many manufacturers that will either sell, finance or lease the equipment. If you choose to purchase or lease, there are reputable vendors offering state-of-the-art machines with favorable terms. Third-party vendors will also lease space in your property and handle all the stocking and maintenance for you.

    Related: How to Start Investing in Rental Properties — Your Step-by-Step Guide

    3. Coin-operated laundry

    In older apartment buildings without washer and dryer connections in each unit, property owners can potentially convert ancillary or otherwise unutilized space in the building (like a basement) into a coin-operated laundry facility.

    During the renovation of an old student apartment building close to NC State University, we converted an empty crawl space into a laundry room with four coin-operated washing machines and four dryers. I had 24 units in the building, most of which were two bedrooms, so approximately 48 residents. This simple amenity generated more than $1,000 per month. The extra $12,000 per year meant an instant equity gain of over $200,000.

    Most suppliers will offer financing or lease options for laundry equipment so you can get started with little capital out of pocket. Coin-operated washers and dryers can also be purchased from major home supply retailers, through Amazon or directly from equipment manufacturers.

    4. Parking

    I’ll give you a personal example: I purchased a church building a few years ago for $860,000. The building is 6,000 square feet and sits on a busy corner near lots of retail and where parking is scarce. I purchased it for the land value with the intent to demolish the building and develop a five-story mixed-use property. The existing building came with something unusual for the neighborhood: an underground parking garage with 21 spaces.

    Knowing the new development would take years, we rented out the parking spaces to pay the property taxes and carrying costs. With 21 spaces rented to nearby businesses at $100 per month per space, we generated $2,100 in monthly revenue, covering nearly half of the $4,500 mortgage.

    If we were to keep the building as a rental property, the extra $25,200 per year translates into $560,000 of additional equity in the building (at a 4.5% cap rate) — making up two-thirds of the $860,000 I paid for the entire property. While it may be difficult to purchase a standalone parking lot due to the demand for land, you can look for properties in infill locations that come with extra off-street parking. This additional revenue source can provide a welcome boost to your bottom line.

    Related: 6 Key Questions You Should Always Ask Before Investing in a Commercial Real-Estate Property

    5. Rooftop cell towers

    A cell tower requires as little as 50 square feet for installation. One rooftop tower can support as many as five carriers and 15 other digital antennas, generating up to $12,000-$15,000 in gross monthly revenue. That’s $6,000-$7,000 in monthly income on a 50/50 split with the supplier. The extra $72,000-$84,000 per year would result in an equity increase for the property of $1.4 million to $2.1 million, often with no out-of-pocket cost.

    Start by contacting American Tower, SBA and Crown Castle — the largest tower suppliers in the U.S. — to gauge demand for a tower on your property and try to get competitive offers. Most will structure their lease payments as a revenue split on the income from AT&T, T-Mobile, Verizon and other carriers.

    6. Freestanding cell towers

    Nearly all suburban developed properties have a 100’x100′ space where a freestanding cell tower can be placed. I’ve even seen some on footprints as small as 50’x50′. Dimensions, location and zoning are dictated by local ordinances, but if you can carve out a 5,000 to 10,000-square-foot section, a cell tower can potentially generate more monthly income than the property itself.

    Rental income or profit sharing on a traditional cell tower can range between $3,000-$8,000 per month based on population density. Even nominal income from a cell tower lease can have a major impact on your equity position and recapitalize in the event of a sale. As with rooftop antennas, cell tower installers and operators can tell you if there is a need for additional coverage where your property is located.

    This is the beauty of real estate: Small changes to cash flow create huge differences in property valuations, asset equity and the owner’s net worth.

    [ad_2]

    Nikita Zhitov

    Source link

  • What Is Equity and How Do You Calculate It for Shareholders?

    What Is Equity and How Do You Calculate It for Shareholders?

    [ad_1]

    Almost everyone understands home equity — this private equity is the percentage of your home you own after paying down your mortgage. More technically, it’s the value of an asset, like property, minus its liabilities, like debt.

    But the term “equity” also applies to things like businesses. As a business owner and entrepreneur, you need to know how equity affects your enterprises and how to calculate it for your shareholders, mainly before you go public. This article will discuss how to calculate equity for shareholders in detail.

    How equity works

    Equity is the value of an asset without its liabilities.

    For example, say that you own a business building, like a retail storefront, worth $500,000. You’ve paid down $300,000 of that property’s mortgage, leaving you with $200,000 plus interest in liabilities. Thus, the equity in the property is (roughly) the $300,000 you own of the building.

    This is a basic example, of course. You can look for and calculate the equity in everything from basic items to business enterprises and stock portfolios. Regardless, equity is vital so that investors, shareholders and other interested parties can determine the actual value of an asset.

    Related: How to Safely Tap Home Equity in a Financial Emergency

    Shareholders’ equity explained

    Shareholders’ equity, therefore, is the net worth or total dollar value of the company that would be returned to shareholders of the company’s stock if:

    • The company’s assets were to be liquidated.
    • The company’s debts were to be paid off.

    Put more simply, shareholders’ equity is the total equity left over that shareholders would have to divvy up between themselves if a company was liquidated entirely to settle any outstanding debts.

    You can also think of stockholders’ equity (or SE) as the owners’ collective residual claim on company assets only after outstanding debts are satisfied. Shareholders’ equity is the same as a firm’s total assets minus its total liabilities.

    It’s essential to know how to calculate share owners’ equity for a variety of reasons:

    • Investors and analysts may need to determine the market value of a company and make suitable equity investments.
    • A business’s board of directors can use this information to determine the business’s valuation for financial statements accurately.

    While similar, shareholder equity is not the same thing as liquidation value. The company’s liquidation value is affected by the asset values of physical things like equipment or supplies.

    Related: Debt vs. Equity Financing: Which Way Should Your Business Go?

    Shareholders’ equity example

    Here’s an example of shareholders’ equity:

    Imagine that you have Company A, with total assets of $3 million. You have total liabilities of $1.2 million. If the company was liquidated, and its assets turned into $3 million, you would use some of that money to pay off the $1.2 million in liabilities.

    What does that leave the shareholders? Approximately $1.8 million.

    What components are included in shareholders’ equity?

    For any given company, shareholders’ equity could be comprised of many different components. These include:

    • Stock components, such as common, preferred and treasury stocks.
    • Retained earnings — this is the percentage of net earnings not paid to shareholders as dividends (yet).
    • Unrealized gains and losses.
    • Contributed capital.
    • Physical assets like business equipment and products.

    When calculating shareholders’ equity using either of the below two formulas, it’s essential to add up all of these components when calculating the total asset value of a firm.

    Related: Use a Balance Sheet to Evaluate the Health of Your Business

    Positive vs. negative shareholders’ equity

    Things can even get a little more complicated. There are positive and negative types of equity.

    Positive shareholders’ equity means a company has enough assets to cover its debts or liabilities. Negative shareholders’ equity, on the other hand, means that the liabilities of a firm exceed its total asset value.

    If the shareholders’ equity in a company stays negative, the balance sheet may display it as insolvent. In other words, the company could not liquidate itself and all of its assets and still pay off its debts, which could spell financial trouble for investors, shareholders, business owners and executives.

    Many investors look at companies with negative shareholder equity as risky investments. While shareholder equity isn’t the only indicator of the financial hole for a company, you can use it in conjunction with other metrics or tools. When used with those tools, investors and potential shareholders can get a more accurate picture of the financial health of almost any enterprise.

    While retained earnings are an essential part of shareholders’ equity (as the current percentage of net earnings is not given to shareholders as dividends), they should not be confused with liquid assets like cash. You can use several years of retained earnings for assets, expenses or other purposes to grow a business. It’s not “realized” cash at the moment.

    How to calculate equity for shareholders

    Fortunately, calculating equity for shareholders is relatively straightforward. Remember, equity is just the total asset value of the company minus its liabilities. You can calculate shareholder equity using the information found on any corporate balance sheet.

    Here’s the formula:

    Shareholder equity = total assets – total liabilities

    Also called the balance sheet or accounting equation, the shareholder equity equation is one of the most critical tools when analyzing the company’s health.

    Here’s how to calculate shareholder equity step-by-step:

    • First, determine the company’s total assets on the balance sheet for a given period, such as one fiscal year. Be sure to add up all these assets carefully and correctly, or use an up-to-date balance sheet.
    • Next, add up all of the total liabilities. Any up-to-date balance sheet should include this information. Liabilities include debts and outstanding expenses.
    • Then determine the total shareholder equity, and add that number to the total liabilities.
    • The remaining assets should equal the sum of total shareholder equity and liabilities.

    A note when calculating total assets includes both current and noncurrent assets. If you aren’t aware, current assets are any assets you can convert to cash within one fiscal year.

    This includes cash, inventory and accounts receivable. Noncurrent or long-term assets you can’t convert into cash in the same timeframe, such as patents, property and plant and equipment (PPE).

    A note when calculating total liabilities: Liabilities also include both current and long-term liabilities. In keeping with the above, current liabilities are any debts due within one year, such as accounts payable or outstanding taxes.

    Long-term liabilities are any debts or other obligations due for repayment later than one year in advance, such as leases, bonds payable and pension obligations.

    Related: How to Protect Your Personal Finances From Business Risks

    Secondary formula

    The above shareholder equity formula should serve you well in most cases. Still, there’s a secondary formula that might be helpful as well.

    Here’s the secondary formula:

    Shareholders’ equity = share capital + retained earnings – treasury stock

    This “share capital method” of calculating shareholders’ equity is also known as the investor’s equation. This formula sums up all the retained earnings of a business and the share capital, then subtracts treasury shares.

    The retained earnings in this formula are the sum of a company’s total or cumulative profits after they pay dividends. Most shareholders receive balance sheets that display this number in the “shareholders’ equity” section.

    This formula can give a slightly more accurate picture of what shareholders may expect if forced/decided to liquidate a company or exit. However, you can use both formulas to calculate equity for shareholders equally well.

    The value of equity for shareholders

    Equity is essential for shareholders for several reasons.

    For starters, shareholder equity tells you the total return on investment versus the amount invested by equity investors.

    Ratios such as return on equity, or ROE (the company’s net income divided by shareholder equity), can be used to measure how well the management team for a company uses equity from investors to generate a profit. ROE can tell investors how capable current executives are at taking investment cash and turning it into more money.

    A company with positive shareholders’ equity has enough assets to cover liabilities. In an emergency, shareholders or investors could theoretically exit without taking substantial financial losses.

    As mentioned earlier, you can also use SE with other financial metrics or ratios to accurately determine whether a company is a wise investment.

    These metrics include share price, capital gains, real estate value, the company’s total assets and other vital elements of private companies. Because equity is essential for shareholders, it’s also crucial for business owners and people on executive boards to calculate.

    Furthermore, equity affects the value of startups on the stock market. Suitable asset allocation will help businesses grow, resulting in a higher amount of money from stock purchasers and ETF managers.

    Return on equity in detail

    Here’s a deeper dive into return on equity. Analysts and investors use this metric to determine if a company uses equity or investment cash to profit efficiently and effectively.

    Say that you have a choice to invest in a company and want to check out its return on equity before making a decision. You look at the company’s balance sheet and figure out that the return on equity is 12% and has stayed at 12% for several years.

    Related: Debt vs. Equity Financing: Which Way Should Your Business Go?

    That’s a pretty good return on any investment. It may indicate that the company is worth putting your own money into.

    On the other hand, if the return on equity is low, like 1%, and the current shareholders’ equity for a company is negative, it’s a surefire sign that your investment dollars will be worth more if you invest them elsewhere.

    Calculating equity is essential when propositioning investors for more funding and advising your shareholders. Now you know how to calculate equity for shareholders with two distinct formulas.

    Looking for more resources to expand your professional financial knowledge? Explore Entrepreneur’s Money & Finance guides here

    [ad_2]

    Entrepreneur Staff

    Source link

  • How To Fill Out a Money Order: Step-by-Step Guide

    How To Fill Out a Money Order: Step-by-Step Guide

    [ad_1]

    When you can’t send a check but don’t want to rely on something as insecure as cash, a money order could be just the ticket.

    It’s essential to know how to send and fill out a money order step-by-step in case you ever need to pay a bill, send money to a relative or transfer money discreetly from one place to another.

    What is a money order?

    A money order is very similar to a check. It allows you to send or receive payments securely, unlike cash.

    However, money orders are prepaid. Instead of money leaving your account when someone catches a check, money leaves your account the minute you fill out a money order and deposit it at an appropriate institution.

    When should you use a money order?

    It can be wise to use a money order whenever you need to pay someone securely but can’t use a smartphone app like MoneyGram, online platform, check or cash (or you don’t want to use any of those methods).

    Related: This is How We Can Transfer Money Online Without Hassle

    This form of payment is accepted practically anywhere because they are automatically prepaid, so there’s no risk of the money “bouncing,” which can happen with a check. Furthermore, there’s no identity theft risk, like when you wire money from a checking account.

    You can use a money order when you need to:

    • Send money to a family member or friend.
    • Pay a bill for your business.
    • Receive money from your workplace or someone else.

    However, remember that you can only send $1,000 in a single money order. You can send multiple money orders in the same shipment, though.

    Banks and other financial institutions can offer this personal finance service, just like they can send cashier’s checks and personal checks. Other financial institutions also provide money orders, including credit unions such as Western Union or anywhere you can have a bank account or get a credit card/debit card.

    Related: Business plan, business – Money Order

    How to fill out a money order

    Fortunately, filling out a money order is very straightforward and not at all difficult. You can get a money order from a location that sells them, such as pharmacies (including Walmart and CVS) or, more commonly, any of the 31,300 United States Postal Service retail offices. Conveniently, you can also send money orders from U.S. Postal Service offices.

    Note that purchasing a money order involves a fee. The fee can vary from place to place; for instance, Walmart usually charges one dollar to send a money order, whereas the USPS can charge anywhere from $1.65 to $2.20 depending on how much you need to send.

    You’ll need a few pieces of information to fill out a money order:

    • The payee’s name.
    • The payee or recipient’s address.
    • The payment amount.
    • Your name and current mailing address.
    • The reason or billing account number for the money order.

    You don’t need to list the issuer of the money order or the location of the post office/convenience store from which you send it on the memo line.

    Step 1: Fill in the recipient’s name

    Once you have a money order, write the name of the person to whom you are paying money in the “pay to the order of” or “pay to” fields, depending on which field your money order has. You should include the full name of the recipient or the full name of the business you are paying.

    Step 2: Add your address

    The next step is to add your address to the purchaser’s address field. This is the address of the person purchasing the money order — in this case, you. You’ll also add the payee’s address.

    Step 3: Fill in the “memo” field

    Then you need to fill in the “memo” field. This is a line or field where you can describe what you’ll use the money order for. If you’re using it to pay a bill, you’ll put the billing account number in this field.

    Step 4: Sign your name

    Last, you must sign your name on the front of the money order where it is indicated. When signing the purchaser’s signature, leave the back of the money order blank. That’s where the payee or recipient will endorse it, similar to endorsing a check.

    There you have it — it should only take you a few minutes to fill out a money order from start to finish, provided you have all the necessary information.

    Where and how to deliver a money order

    After you have filled out the money order, detach the receipt. The receipt is vital for your records and allows you to track whether the recipient ever cashed the money order.

    Hand-deliver the money order to the recipient or mail it to your recipient using the postal service of your choice. Only the recipient will be able to cash it.

    Remember that, unlike a check, whatever money you have designated for the money order will be gone from your account before the recipient cashes the money order.

    Can you cancel a money order?

    Yes. To do this, you should immediately contact the person or party that issued the money order (i.e., USPS or Walmart). Ask for a cancellation request form and fill it out.

    You’ll need to have your receipt from the money order and show it to do this. Then you’ll have to pay a fee to cancel the money order. This process is the same if you want to replace the money order or get a cash refund.

    What else do you need to know about filling out money orders?

    Now you know how to fill out a money order step-by-step. Money orders can be critical financial tools from time to time, and they can come in handy if you need to send funds securely and quickly from one place to another.

    Looking for more informational articles like this? Explore Entrepreneur’s Money & Finance articles here

    [ad_2]

    Entrepreneur Staff

    Source link

  • 8 Real Estate Questions To Ask Potential Franchisors

    8 Real Estate Questions To Ask Potential Franchisors

    [ad_1]

    Opinions expressed by Entrepreneur contributors are their own.

    There are many reasons why entrepreneurs may want to buy a franchise. Making a brand successful is a tremendous amount of work in today’s world. Competition for consumer dollars is fierce. It can be challenging to elevate a brand and achieve profits. These profits will stem from a well-thought-out and strategic business plan.

    The beauty of buying into a franchise is that the brand is already proven. Also, franchisees can benefit from the franchisor’s assistance in navigating the business’s challenges. As for specific profits, each franchisor should disclose sales and estimated earnings in their Franchisor Disclosure Document, often referred to as an FDD.

    Before buying a franchise, here are eight essential questions to ask.

    Related: Thinking of Buying a Franchise? These Four Industries Are Flaming Hot Right Now

    Does the franchisor have a dedicated in-house real estate department?

    If a franchisor has paid corporate staff whose sole purpose is to assist their franchisees with the real estate process, then the franchisor gets a star in my book. The franchisee will typically have a real estate broker represent them in selecting a site and negotiating the deal. However, the in-house real estate manager is vital to assisting the franchisee’s broker. The in-house real estate manager will provide the franchisee’s broker with detailed site criteria tailored to the franchised branding requirements.

    How do the real estate department and support staff size compare to the franchise sales department?

    Of course, franchisors need a sales department to sell franchises and grow their brand. Nevertheless, it is a good idea for a potential franchisee to know the size of the franchisor’s sales department. It might be a red flag if a company has an extensive sales department and little support staff for the franchisees.

    Related: Looking to Buy a Franchise? Here’s How to Start

    Does the franchisor have a real estate approval process?

    The majority of franchisors will need to approve a franchisee’s location. The approval process always needs to happen before a franchisee signs a lease. If the franchisor does not have a method of approving the site where the franchisee’s business will be, then the franchisee should be concerned. Not having an approval process could mean that the franchisor is in a hurry to open locations and does not have the quality of the sites as a top priority.

    Does the franchisor have a letter of intent template?

    The letter of intent is the framework for the lease. Most of the main deal points for the lease are in the letter of intent. These include base rent, additional charges, rent increases, lease length, options, tenant improvement allowance, landlord delivery, free rent and the rent commencement date. Additionally, in the letter of intent are the tenant’s use clause and the franchisor’s recommendation on necessary exclusives. The tenant must let the landlord know what use they will lease the space for, and the franchisor should provide this use language. The franchisor should also spell out exactly what they want regarding an exclusive. Exclusives protect the tenant from a landlord leasing to a competing tenant of the same use.

    Does the franchisor have a landlord’s work letter?

    The landlord’s work letter defines the conditions for delivery of the premises. Specifics to utility requirements (electric, water, & gas), heating, ventilation, and air conditioning (HVAC ), number of restrooms, flooring, and ceiling are just a few of the items covered in the landlord’s work letter. If the franchisor provides their franchisee with a landlord’s work letter, it will show experience.

    Related: The 5 Types of People You Need To Start a Business

    Could the franchisor provide a map outlining the franchisee’s territory?

    When buying a franchise territory, the franchisee will want to know specifics of where they will be able to open their business. If the franchisor does not provide a map showing this exact area, I recommend asking for one.

    Additionally, ask the franchisor how many other franchisees have purchased territories in the area. It would help if the franchisee also asked the franchisor what protection is offered to prevent another franchisee from opening adjacent to their territory. Finally, ask specifically how close another franchisee can open to an existing store. Sometimes I see franchises expand too quickly, which can hurt profitability.

    Once a franchise agreement is signed, how long does the franchisee have to find a location?

    There are two viewpoints to this question. The franchisor wants people to refrain from buying up territories and not opening stores. The franchisee only wants to open a store if the desired real estate is available in their territory. The franchisee needs to understand if there are consequences and what those consequences are if they purchase a region and do not open the store(s) they agreed to in their franchise agreement.

    Related: 5 Major Deal Points to Know Before Signing a Lease

    After purchasing a territory, can a franchisee trade territory?

    This one depends on how many franchisees the franchisor has. Most of the time, I see franchisors work with their franchisees if the franchise wants to trade territories. For example, the franchisee could wish to change territories due to a lack of quality real estate, or they may need to move their residence. It is advantageous for a franchisee to find out before signing a franchisee agreement about the possibility of changing territories.

    Purchasing a franchise is a decision that should require much thought. I also recommend potential franchisees speak to many existing and ex-franchise owners of the brand in question. The more questions asked in advance, the better-equipped one will be to run a successful business.

    [ad_2]

    Roxanne Klein

    Source link

  • VCs Are Missing Out on New, Innovative Ideas. Here’s Why (and What They Can Do About It).

    VCs Are Missing Out on New, Innovative Ideas. Here’s Why (and What They Can Do About It).

    [ad_1]

    Opinions expressed by Entrepreneur contributors are their own.

    It has been a challenging time for technology investing. S&P and NASDAQ are down, and crypto is down considerably. S&P 500 declined by 19% earlier in the year, and NASDAQ, which is tech-heavy, has lost almost 30% of its value in the same period, with some of the biggest tech giants reporting disappointing earnings.

    The crypto winter continues with Bitcoin and Ethereum prices tanking following the collapse of FTX earlier this month, with around $200 billion being wiped off the crypto market in just days. It goes without saying that on the surface, it may seem like this is not a good time for tech investing, and many investors have indeed dropped their big tech stock in favor of “old economy” stocks. Still, could this be an opportunity to invest in companies with a discount?

    Related: 6 Important Factors Venture Capitalists Consider Before Investing

    Tier 1 wastage

    For large VC funds, investors are often looking to partner with startups that can achieve more than a $50B outcome in order to get a return of 3-5 times the fund. However, with only 48 public tech companies currently valued at more than $50B and over 1000 venture funds gunning for these few, this is a challenging situation.

    Furthermore, since VCs only typically take on 20 or 30 companies per fund, they often use “pattern recognition,” whereby they use experiences from the past to make more efficient decisions about current investments. However, what can happen is that their portfolio companies all look pretty similar.

    This can be problematic for entrepreneurs applying for VC funding who do not fit the “tried and tested” criteria many VCs use to decide whether to invest or not. In fact, we see that the majority of U.S. venture funding goes to white, Ivy-League-type entrepreneurs. In Q3 of this year, only 0.12% of venture funding went to Black entrepreneurs.

    Even if these startups have the potential to be the next biggest thing, their idea will struggle to get off the ground just because they cannot get the venture capital. Furthermore, VCs also stand to lose out, simply because they are only focusing on that small segment of startups and not on the potential of others that perhaps do not fit the bill on paper.

    Opportunity for disruption in the market

    However, while many VCs are focusing on targeting increasingly large outcomes, this provides an abundance of opportunities for what is left. By targeting the underfunded startups, you can invest in businesses that have an 80% chance of a $300M outcome and gradually move upmarket from there.

    Not only will this provide a funding opportunity for entrepreneurs who would normally have been seen as outside the box, but it can drive innovation and new ideas. Different people can solve different problems, so it stands to reason that funding a wider spectrum of people will create new, innovative solutions — potentially serving a wider, more diverse population.

    Related: How We Can Beat Venture Capital’s Diversity Problem

    A need for a change of perspective

    It is not that venture capitalists have made bad decisions or ignored critical data. They haven’t, but it is rather the culmination of multiple parties making rational decisions that have resulted in systemic levels of risk.

    If we look at U.S. venture performance, the majority of returns are generated by a very small subset of players, with the top 5% of funds significantly outpacing the median.

    This is also the case with startups, where you will usually have just one from the VC fund’s portfolio bringing in the overwhelming majority of the returns if not all. When successful, VCs can see a return of 5-10x of their money back, and founders can become billionaires.

    Yet, we now find ourselves in a post-Power Law meta, which opens up an opportunity for a new perspective and to start making new rational decisions. This shift has seen a substantial increase in both the VC fund count and value in the U.S., with 2021 proving to be a record-breaking year.

    Approximately $329B was invested across 17.054 deals last year, a record for both deal count and value. Investors also passed the $100B mark for the first time ever, raising $128.3B.

    How should venture work?

    However, although we would like to think that this influx of funding is going to the entrepreneurs who could not otherwise get funding, this is not the reality of the situation.

    A funding round in a startup will usually comprise 3-5 major funds and a variety of smaller checks putting capital in. However, a recent analysis by venture fund, Social Capital, has shown that there is a significant overlap of VCs co-investing with each other.

    Additionally, funds over $500M accounted for 77% of capital raised by venture funds in H1 2022, with an average fund size of $317M. The returns are predominantly concentrated on those few companies and a few key investors.

    Related: You Can’t Get VC Funding for Your Startup. Now, What?

    What is the solution?

    Many things can go wrong with startups once they have accepted venture capital, and they are typically left with two options: to shut down or pivot. Limited partners’ fund managers are generally not going to consider risky bets, opting to look for consistent winners within their allocation. Furthermore, you have to look at what would incentivize them to diversify when they have received huge returns over the past decade.

    Still, this provides an opportunity for an alternative product to invest in companies with limited fund size and equity optionality through redemption clauses or equity buybacks. As a serial entrepreneur myself, I have built multiple businesses in the last few years. Some failed, and a couple of them succeeded in multi-million dollar companies with offices on a global scale.

    Now as Co-Founder and Managing Partner at Venturerock The Valley, we aim to support startups from seed to scale and decrease the high failure rate for startups. We are not looking to sell products, but rather to focus on startups that create a big impact and really solve a problem using emerging technologies such as blockchain, AI and IoT. All our partners combined have accelerated more than 700 startups to date.

    While many still focus on the big few, they risk missing out on new innovative ideas and breakthrough technologies simply because they did not fit the mold. Even though these startups may not turn out to be the next $50B company, they can still bring great value to the table, be very successful and create a big impact. These companies deserve to be supported on their journeys and to see their visions come to fruition.

    [ad_2]

    Danny Cortenraede

    Source link

  • 6 Effective Real Estate Investment Strategies

    6 Effective Real Estate Investment Strategies

    [ad_1]

    Opinions expressed by Entrepreneur contributors are their own.

    As a real estate investor, you might encounter varying advice about investing on the internet, social media and from other investors. Some of these sources may claim they know best, but there are many effective strategies for investing in real estate. There isn’t a single strategy that is the best approach for every landlord. In fact, your real estate investing strategy should reflect your personal long-term goals, available resources and current circumstances.

    Plus, your investing strategy can — and should — change as your needs change. The success of your rentals isn’t tied to one investing strategy, but rather the skills you’ve built, the tactics you’ve learned and your ability to shift between different strategies when needed.

    Below are six great real estate investing strategies you may use at various points in your investing career:

    Related: Master These 6 Skills to Succeed as a Real Estate Investor

    1. House hacking

    House hacking is a popular investing strategy wherein you buy a property, live in half and rent the other half out. The rental income you receive helps reduce your monthly mortgage payments on the property.

    This strategy works well with duplexes and other multiplexes because you can maintain a clear division between your and your tenant’s spaces. However, some investors also rent out a basement or bedroom from their single-family home (SFH).

    House hacking is a trendy and widely used investing strategy for several reasons. For one, it’s an excellent way to transition to real estate investing for new landlords. This is especially true if you learn to manage your rented unit or bedroom with property management software. Software helps you carefully track your income and expenses while you establish your business. Another benefit of house hacking is that it allows you to get a residential mortgage because you’ll be living on the property as well.

    In the long run, this strategy’s aim is to make it possible for you to move out and transition the property into a full-blown rental.

    2. BRRRR deal

    BRRRR investing is another effective strategy made popular by Brandon Turner on Bigger Pockets. BRRRR stands for buy, rehab, rent, refinance and repeat:

    • Buy: Buy a property at below-market value.

    • Rehab: Renovate and improve the property by adding value.

    • Rent: Rent out the property to cover the mortgage.

    • Refinance: Get the property reappraised, then use cash-out refinancing to secure an advantageous mortgage.

    • Repeat: Use the capital you recovered from the deal to invest in more properties.

    With BRRRR, the idea is to capitalize on a property others may have overlooked due to its low face value or apparent lack of potential.

    To use the BRRRR strategy, target properties that are sound investments despite needing some work. Focus on improvements that increase value: installing hardwood flooring, adding extra bedrooms or remodeling kitchens and bathrooms. The value added from these improvements will improve your property appraisal and help you secure more funds to invest elsewhere.

    Related: 5 Tips for New Investors Who Want to Make Money With Real Estate

    3. Wholesaling/driving for dollars

    Wholesaling is a strategy many investors use to capitalize on great deals. In this strategy, you find a property that will make a good deal, facilitate a sale between a buyer and seller, and then collect the difference between the seller’s price and the amount the buyer pays.

    To succeed with this strategy, you need to be informed about which properties are currently on the market. You can use popular listing sites, the Multiple Listing Service (MLS) or a strategy known as “driving for dollars.” This involves manually searching neighborhoods for properties that look promising.

    One downside of wholesaling is that you need strong marketing and sales skills. If you don’t have this skill set and don’t want to work to acquire it, wholesaling might not be for you.

    4. Flipping properties

    Flipping properties is like BRRRR in that you buy, renovate and improve a property. However, with house flipping, the end goal is to sell the property, not rent it out.

    House flipping works best when you renovate and flip as quickly as possible. The longer you wait to sell, the more mortgage payments you must make. Like BRRRR, house flipping works best with properties listed at below-market value or those that are easy to improve at low costs. This way, improvements can significantly increase the property’s value and lead to quick turnovers.

    One downside to this strategy is that you’ll have higher capital gains taxes because you sold the property so quickly. You’ll also need help to successfully pull off house flipping — specifically, you’ll need a team of builders and renovators and access to high-quality materials at a relatively low cost.

    5. Syndications

    Syndication is often considered a more passive real estate investing strategy. However, with careful decision-making and an active eye on the process, syndication can lead to great gains. The main idea with the syndication strategy is to pool your funds with other accredited investors to buy real estate.

    Here’s how it works: You pay syndicators to locate and manage most deals, then benefit from the profit. Syndication can be public or private. Public syndication is usually operationalized through a syndication marketplace, while private syndication is managed manually by investors.

    Crowdfunding is a specific type of syndication investing that involves accredited and non-accredited investors alike who contribute and profit from deals. If you choose the crowdfunding path, you’ll work with a broader range of investors. You also won’t be expected to contribute as much entry capital as you would with traditional syndication (typically only around $50-$1,000 is required).

    If you choose the syndication route, be picky about who you work with. You want to ensure your investments are in good hands, even if you didn’t contribute as much initially.

    Related: 7 Common Mistakes Made By New Real Estate Investors

    6. Live-in-then-rent

    The live-in-then-rent strategy is a modified house-flipping scenario. Essentially, your property is a SFH (usually) that you live in initially and then turn into a rental after you move out. The main difference between live-in-then-rent and house hacking is that you don’t live in the property and rent it at the same time. Instead, these are two separate phases.

    Live-in-then-rent is a great strategy for people who don’t want to live closely with their renters but still want to participate in real estate investing on their budget.

    With so many ways to invest in real estate, it may seem challenging to devise a strategy that meets all your needs. However, by catering your investing strategy to your particular goals, you can successfully cultivate your real estate business.

    [ad_2]

    Dave Spooner

    Source link

  • 6 Tempting Investments To Avoid

    6 Tempting Investments To Avoid

    [ad_1]

    Opinions expressed by Entrepreneur contributors are their own.

    As investors, we’re often told to be active and diversified. But are some investments not worth your time or money? Indeed, certain types of investments should be avoided at all costs. Here’s a list of common financial products and how they might affect your portfolio.

    1. Whole life insurance

    Whole life insurance costs substantially more than term insurance. Whole life premiums are typically much higher than term premiums, and the cost of whole life policies can be even higher for older individuals. It’s also important to note that since whole life policies cannot be cashed out, you can’t use them as collateral if you decide you need money from your investments in the future. Additionally, if someone dies before their policy expires (which often happens with whole life policies), their beneficiaries only receive a fraction of what they were expecting because of how much this type of insurance costs.

    In addition to these issues with cost-effectiveness and liquidity, whole life insurance also offers fewer death benefits than other types of investments due to its nature as an annuity contract instead of a mutual fund or stock portfolio; this means that there won’t be any growth potential after purchasing your plan which would otherwise come from investing in other funds or stocks over time.

    2. Low-interest saving accounts

    A low-interest savings account is an investment you can make with money that you don’t need to use immediately. Savings accounts are generally insured by the government and offer a slight interest, which is often lower than inflation. These accounts are not liquid, meaning you cannot withdraw your savings without penalty if you need them for something else. They also have high fees attached to them and may even charge high minimum balances if you aren’t putting enough money in there every month. Furthermore, since these types of investments don’t earn much interest on the cash inside them, they may lose value over time due to inflation.

    Related: How Generation Z Can Jump-start Savings (Advice Anyone Can Use)

    3. Penny stocks

    Penny stocks are low-priced shares of small companies that trade over the counter rather than through an exchange. They can be risky investments because they aren’t regulated by the Securities and Exchange Commission (SEC). This means that penny stocks are not required to follow the same strict rules as other investments, which makes them more likely to be scams.

    Penny stock investors don’t have many options for selling their shares — penny stocks typically don’t trade on any of the major exchanges where investors can sell them for cash. If you want to sell your shares, you’ll usually need to find someone who wants them badly enough that they’ll accept less than market value. And since most people have no idea what these “spare” shares are worth, it’s easy for folks posing as brokers who say they’ll buy your shares at an inflated price (or even just a flat rate) without even checking if there’s any demand for those particular shares on an actual exchange somewhere else in the world.

    Related: 5 Things Millionaires Do That Most People Don’t

    4. Gold coins

    Gold coins are not a good investment. They’re essentially just a store of value, like other precious metals. While some people may see this as an advantage in that it can be bought and sold easily (which is true), it does not generate income as stocks or bonds do — and it can also lose value if gold prices go down. If you want to buy something tangible, buy silver instead: It’s cheaper than gold on an ounce-by-ounce basis, has more industrial uses (such as being used to manufacture electronics), and has been less volatile over time than gold has been.

    Related: Why It’s Never a Bad Time to Invest in Precious Metals

    5. Hyper-aggressive growth mutual funds

    A hyper-aggressive growth fund invests in companies with high growth potential. These funds tend to invest in risky stocks, meaning they could quickly lose value if the company’s stock price falls or the economy goes into recession. The risks of these types of funds are twofold: first, there are times when the market will crash, and your investment will be lost entirely; second, even under normal conditions, you may see an overall loss over time because these types of investments tend to fluctuate in value more than other investments (like bonds). If you’re looking for an aggressive option with a chance of making some serious money, consider an aggressive growth fund instead.

    6. Complex private limited partnerships

    There are some types of investments you should avoid at all costs. One such type is a complex private limited partnership. These investments are dangerous because they often have hidden risks that can lead to significant financial losses. A good example is the Madoff Ponzi scheme, which ended with many investors losing their savings.

    Another reason you should avoid these types of investments is that they involve high tax implications, which can be challenging to understand and may require professional assistance from an accountant or other expert to comprehensively comprehend the tax laws governing them. Some companies may also try to sell you investment opportunities with very little information about what exactly it is that they’re offering. These products are often sold by unscrupulous individuals who will take advantage of people’s lack of knowledge about financial products to make quick cash off their victims’ backs without ever completing any work on their behalf (which means no profits).

    [ad_2]

    Christopher Massimine

    Source link

  • 5 Major Leasing Deal Points to Know Before Signing a Lease

    5 Major Leasing Deal Points to Know Before Signing a Lease

    [ad_1]

    Opinions expressed by Entrepreneur contributors are their own.

    Are you thinking about leasing a space in a retail center? If so, there are many items a tenant needs to be aware of. Here’s a list of five major deal points to be mindful of.

    Related: Running a Business – How to Lease Space

    1. Guarantees

    Many landlords will not lease to a tenant without the tenant personally guaranteeing the lease. Keep in mind that there are techniques a tenant can endeavor to lessen the guarantee. These include offering a limited or rolling guarantee. The limited guarantee will not last for the entire lease term but for the number of years agreed on by the landlord and tenant. The rolling guarantee means that the total exposure the tenant is liable for is the number of months agreed to, regardless of the months remaining in the lease (unless the remaining months are less than the rolling months).

    If you decide to give any personal guarantee, I highly recommend you consult your real estate attorney to understand the guarantee’s implications fully.

    Related: 5 Keys in Negotiating an Office Lease

    2. Use

    When leasing space, it’s essential to be very clear on your use of the premises. Your use in your lease is the only one you have permission to use the premises for. If you decide to expand your business beyond that use, you would need authorization from the landlord for that other use. Also, if you do not have an exclusive in your lease, nothing stops the landlord from leasing to another tenant in your same center, with the same use.

    3. HVAC (heating, ventilation, and air conditioning)

    Not only is it imperative to know specific to the existing HVAC regarding capacity and age, but it is also significant to understand your lease if the HVAC breaks.

    Let’s start first with capacity and age. You need to know if the current HVAC needs to have the capacity you need to operate your business. Capacity is typically not an issue if the space has been leased to another tenant prior and you are opening a retail location where you are selling soft goods. Still, there are other uses where the capacity of HVAC plays a significant role. For example, if you are opening a restaurant, you must know what size HVAC you need to run your business successfully.

    Once you have identified if the existing HVAC will work for your use, you need to know the age. If the unit is older, you need to be aware of the age of the unit during your negotiations. Just so you know, it is the tenant’s responsibility to do their due diligence and find out this type of information as soon as possible when considering a space to lease.

    If you find out the unit is older, I recommend you negotiate with the landlord to have it be the landlord’s responsibility to replace the unit before your business opens. If the landlord is unwilling to replace the HVAC, you should negotiate a warranty lasting for a period that you are comfortable with. You also need to determine who is responsible for fixing the HVAC if it breaks during the lease and who’s responsible for replacing the unit if it is not salvageable. This information regarding who is responsible should be in your lease, and you must know and be comfortable with it before you sign your lease.

    Related: How Small Shops Economize by Sharing Space

    4. Options

    A lease option gives the tenant a choice to renew their lease. A tenant needs to recognize that if they do not have any options to renew their lease, then when their original term expires, the landlord is not obligated to renew their lease. Since options benefit tenants, landlords are not eager to give them. Although it is not required of the landlord, it is retail common industry practice for landlords to provide an option to match the initial term of the lease. For example, if a lease is five years for the initial term, considering the industry practice, the landlord would give one five-year option.

    In addition to knowing if you have options and what the term is, it is also important to discern your rent during your options. The rent for your options will probably be higher than the current term, and you must make sure your business plan can support the rent during your options.

    5. Additional charges

    Additional charges — known as NNN or triple net — are the extra charges that a tenant pays in a NNN lease on top of the base rent.

    There are different types of leases. In addition to NNN leases, other types you will hear about include modified gross leases and full-service gross leases. The majority of shopping center leases are triple net leases.

    There are three items that the NNN is composed of, which include the landlord’s property taxes and insurance and the CAM (common area maintenance). CAM typically includes parking lot maintenance, outside lighting and common landscaping. If each space in the building is not separately metered for water, your water will typically be included in the CAM. As a tenant, you should note that the NNN charges are estimated and could change. If the NNN charges adjust, then your rent will also alter.

    My experience reveals that with all negotiations, there is usually a compromise to be made on most deal points. It is critical that all tenants thoroughly read and understand their lease agreement and have a commercial real estate attorney advise before the tenant signs the lease. I also recommend using a commercial real estate broker specializing in retail to represent you during your offer negotiation process.

    Related: Save Money by Renegotiating Your Lease

    [ad_2]

    Roxanne Klein

    Source link

  • 20 Tips to Avoid Buying a ‘Zombie’ Franchise

    20 Tips to Avoid Buying a ‘Zombie’ Franchise

    [ad_1]

    Opinions expressed by Entrepreneur contributors are their own.

    “Zombie franchises” are out there. What is a zombie franchise? It’s one that has stalled out but still markets its franchise opportunity as if nothing is wrong. The brand is typically shrinking in both relevance and the number of open units. Previously loyal customers are being siphoned away by more innovative concepts. Underlying demographics may have shifted. Market trends may be working against the brand, but management hasn’t created a new path. Unit-level economics are weakening. Management inertia or denial may compound the brand’s problems.

    Zombie franchise systems are usually filled with franchisees who would gladly exit if only they could! Poor unit-level economics and an undercurrent of franchisee discontent scare away buyers, so resale volumes are low. Expansion-minded franchisees look outside the brand.

    Related: 5 Strategies for Avoiding the Most Common Franchisee Mistakes

    Don’t get trapped

    New franchisees who miss the signals eventually realize their mistake. They may feel disclosures were inadequate or misleading. They often look back on conversations with franchisees and wonder how they didn’t hear the negative feedback. They may remember sunny conversations with consultants/brokers and the corporate team and feel duped. Or perhaps corporate is truly out of touch and doesn’t even realize there is a problem! All of this destroys franchisee trust and usually the relationship.

    Franchisees in a zombie system are typically shackled to the business with personal guarantees, a site lease, equipment or vehicle leases, a Small Business Administration (SBA) loan, a loan against their home, a loan against their investments or 401(k) or loans to family and friends. The long-suffering franchisee can’t hire enough help because they can’t afford it, can’t sell the business and can’t close it down. They are essentially indentured servants.

    Often these brands spend significant money on branding and advertising to try to convince potential franchisees that they are still worthy of investment. They try to reinvigorate franchise unit sales, but not the underlying business.

    Related: 5 Things to Consider Before Owning a Franchise

    20 signs of a zombie franchise

    You’re too smart to get pulled into a weak franchise concept. Here is an easy checklist to keep your due diligence on track and avoid zombie franchises. If you’re a founder hoping to sell to private equity, PE will screen out brands with these attributes unless they are dedicated turnaround investors, so fixing these issues becomes your to-do list:

    1. Lack of unit growth, especially via existing franchisees. Talk to as many franchisees as possible. If they don’t want to expand even though the territory is available, I advise moving on.

    2. Weak unit-level profitability

    3. Unfulfilled development agreements. Franchisees would rather lose their deposits than follow through and open promised units. Item 20 in the Franchise Disclosure Document lists franchisees and holders of development agreements. Connect with those franchises.

    4. Corporate parent overly dependent on selling franchises. Look at how much revenue is related to franchise fees compared to recurring royalty revenues.

    5. Corporate parent putting more attention on supply chain and rebates to drive revenue, again usually a signal of falling recurring royalties. Murky disclosures about rebates and supply chain costs to franchisees should also encourage you to move on to other concepts.

    6. Bloated sold not open (SNO) funnel or SNO numbers that are quietly adjusted from year to year due to weak unit openings. Google prior year press releases and industry articles. Was management bragging about “400 units sold” five years ago but only 50 units are open, and the rest are still sitting in the Item 20 sold not open list? Red flag.

    7. An increasing number of poorly performing franchises. Again, it is worth the time to track down old disclosures so you can compare several years of unit-level performance. How resilient is the concept? Are trends positive?

    8. The franchise stops publishing Item 19 earnings representations when Item 19s were routinely included in prior disclosures.

    9. Increased franchisee litigation

    10. Franchisees who want to sell before the expiration of their first license agreement.

    11. Prospective franchisees drop out after considering resale options.

    12. Franchisee discontent spills onto internet sites dedicated to publishing stories from unhappy franchisees.

    13. During validation, you discover that franchisees aren’t following the system. They have developed “hacks” to improve profitability.

    14. Poor franchisee validation, poor franchisee surveys or other signals of a dysfunctional franchisee-franchisor relationship.

    15. Shrinking candidate funnel

    16. Weakening customer interest; falling market share.

    17. Corporate team turnover, especially among field support (they are the staffers working most closely with potentially unhappy franchisees). Do franchisees provide positive grades on management team performance?

    18. Do you see danger signs but management seems to be in denial? Complacent? Blaming franchisees? Has anyone from the corporate team ever left to become a franchisee themselves? Why not?

    19. Is there evidence of ongoing investment in innovation to keep the brand relevant? Do franchisees say this is a problem area?

    20. Relatively high Small Business Administration (SBA) loan-charge offs. These are lagging indicators due to time but certainly a troubling signal.

    Related: What You Really Need to Look for When Considering a Franchise

    Is working through the above list work? You bet! You owe it to yourself to conduct thorough due diligence. The above list will save you time, money and headaches. If you see weak signals, don’t waste your time. Just move on. There are many strong, healthy, proven franchise options out there. Be picky and protective of your time and money. Only the worthiest concepts deserve your attention and commitment.

    What if you’re a franchisor and you recognize troubling signals of your own brand in this list? Start with improving unit-level economics and rebuilding trust and strong communication with your franchisees. Those are the two highest impact areas in any franchise.

    Are you interested in eventually selling your franchise business to private equity? Preventing problems in the first place is key. Any whiff of trouble can have a big impact on your deal terms, business valuation and even which investors will take a serious interest in your brand. Once you’ve stalled out, the bar is raised to prove you’re back on track. Remember that most PE investors in franchising want a growth story, not a turnaround project. Are you building a valuable reputation?

    [ad_2]

    Alicia Miller

    Source link

  • Why Investing in Art and Creativity Is Crucial in Today’s Economy

    Why Investing in Art and Creativity Is Crucial in Today’s Economy

    [ad_1]

    Opinions expressed by Entrepreneur contributors are their own.

    There’s no denying that art inspires us and brings us joy. It bridges the gap between cultures and validates our experiences. Art is also part of a healthy community — and a healthy mind, body and soul. Science validates this. And yet, as entrepreneurs and business owners, we tend to think of art as “nice to have,” as something that’s not as important to the world as the other businesses we create. But the truth is, we need art and the artists who create art more than ever, especially in this economy. Here’s why.

    Art makes us feel seen

    Art validates the human experience. Through art, artists communicate their thoughts, ideas and emotions. They put those feelings out into the world with the hope that even one other person will be able to connect with them.

    When we open our minds and connect through art, we’re exchanging knowledge and thought on an intensely personal level, possibly with people who we never thought we’d connect with. Artists allow the door to open between cultural backgrounds; what they create can break down cultural barriers. Art can heal.

    Art bridges the gap between communities, creates empathy in situations where communications are strained and helps to remind us that, at the end of the day, we are all human beings with similar experiences, no matter what community we belong to or language we speak.

    Related: The Art of Investing in Art

    Art defines culture

    Art also preserves history. Think of everything one piece of art represents:

    • The time period in which it was made

    • The reason the artist created it

    • The medium and tools used

    • The public’s response to the piece

    All of these details (and more) paint a picture of a moment in time. Not only has art survived through time and traversed all around the world, but it also doesn’t discriminate amongst age, gender, race or status. Art explores every culture, every class and all spectrums of the human experience from childhood to old age.

    Culture can be studied through art and not just the famed artists that history favors, like your Da Vincis and van Goghs. Artists in every corner of the world, even the most unexplored or unthought-of places, can guide us through the culture their work represents.

    Related: Experiencing a Creative Block? Look to the Art on Your Walls for Fresh Inspiration

    Art is good for the economy

    As if art doesn’t do enough good for our health and our local communities, it also strengthens the economy. Really. Creative industries provide jobs, encourage tourism and boost revenue to local businesses. Labor studies also show that the value added by arts and culture to the U.S. economy is five times greater than the value from the agricultural sector.

    Fashion, film, television, performing arts, publishing, music — all of these creative industries and many more directly benefit our local and overall economies. These sectors even grew during the pandemic, while many industries struggled.

    Now that the point for supporting artists has been made, let’s talk about the how. Here are a few tips on how to support artists:

    Buy from the artist directly

    How can you support artists who have contributed to the world and made an impact on your life? The first and most obvious way, of course, is to buy art. More specifically, buy work directly from the artist rather than a distributor. Buying art directly without the middleman ensures that every penny you spend will support the artist directly.

    Keep in mind that the price of a piece of art not only reflects value, but time, effort and resources as well. If you’d spend a certain amount of money on a print of a famous artist’s work — one who might not even be living anymore — expect to pay a similar amount, if not more, for work from a living, breathing artist who is producing equally great work.

    You can’t catapult an already famous artist like Monet into much more success. Your purchase typically goes toward an estate or fund, which doesn’t impact Monet as a person. When you buy from a current artist, you’re directly investing in the artist’s future and career. You’re encouraging them to keep producing art.

    Related: Science Shows How Creativity Can Reduce Stress

    Vote with your dollars

    Another way to support artists is to vote. Vote to keep nonprofits and programs that value the arts, fund them and keep them alive. Despite all their benefits, the arts are often first to go when budgets are limited in schools and other facilities.

    Vote with your dollars, too. Voting with your dollars means to mindfully spend, invest or donate your money to causes you care about. Find people and organizations in the arts that you can support. Charity Navigator and GuideStar are great tools that can help you find nonprofits involved in the arts. Or look for a local business to buy from rather than a big box store or corporation that doesn’t need your money.

    Art is vital to our survival and well-being as a species. Despite everything that art provides, artists often don’t get the appreciation or support that they need. So, invest in creativity by becoming an art advocate, not just for your favorite artist, but for the future of artists. Let’s hope we never have to know what life would be like without art.

    [ad_2]

    Jodie King

    Source link

  • How Businesses Can Navigate the Treacherous Waters of Trade Wars

    How Businesses Can Navigate the Treacherous Waters of Trade Wars

    [ad_1]

    Opinions expressed by Entrepreneur contributors are their own.

    In July, world leaders agreed to impose extra import tariffs on Russia during the G7 Summit, but the impact has been felt in other countries, including the U.S., with trade reduced by an estimated 62%, according to an analysis of the economic consequences of war. Russia’s war with Ukraine, and the subsequent trade sanctions placed on Russia, have impacted many businesses that rely on overseas trade. Now, businesses with overseas suppliers need to prepare for the uncertainty of trade tensions, tariffs and even the potential for embargos as the war escalates.

    Just look at Shell. When they ceased operation and use of any Russian properties or partnerships for their oil production, they certainly felt the impact. Shell, like many other energy companies, had to fill the void left after they their relationship ended with Russian energy. Ultimately, this led to a rise in oil and gas prices across the world. This isn’t something felt only by big business, though, as everyone deals with the impact of tariffs either directly or indirectly.

    If your business is facing tariffs, trade sanctions or the effects of war, here are some strategies to plan against the potential threat it could pose to your business internationally.

    Related: Shell to Stop Buying Russian Oil and Gas

    Eat the cost of the tariff and take a profit hit

    Up until June of this year, the U.S.’s whiskey industry experienced lean times while exporting to the U.K. and EU, as Trump-era disputes over steel and aluminum trade resulted in steep tariffs on American whiskey. The whiskey companies had to monitor their profit margins and the number of tariffs their profits could take.

    For international businesses experiencing periods of higher tariffs, it requires analyzing what costs can be absorbed and covered, and what sorts of belt-tightening and cost-cutting could help mitigate the impact of tariffs and to offset their cost on your business. While cutting costs can help improve profit margins, the negative effects of the tariff still exist, but at least consumers won’t see a drastic increase in price of your product. It’s all a matter of how much your business can stand to lose in profit margin and remain profitable domestically and abroad or if it can at all.

    Pass the cost onto the consumer

    On the other hand, a business always has the option to raise its prices to offset the tariffs’ impact on its bottom line. With that, however, comes the risk that customers may no longer want to buy your product.

    Harvard Business Review emphasized that risk can be offset, though, if your business has an honest approach to explaining why it’s raising its prices. Communication is key. Leveling with your customers and being honest regarding the realistic implications of a trade war go a long way.

    Related: What the Invasion of Ukraine Really Means for Business

    Insure against the risk of a trade war

    Transferring the risk by insuring against it is another option. Risks from tariffs can, in many cases, be included in Business Interruption Due to Legislative insurance. However, the trade-related risk is ever-evolving and complex, which can make it difficult and costly to insure in the third-party commercial insurance market. This is where captive insurance can be an option.

    Captive policies often have fewer policy exclusions than commercial insurance policies. Captive insurance also negates the perceived sunk cost of paying insurance for a risk that doesn’t materialize.

    For example, insuring against tariff risk for 10 years without any losses to tariffs occurring over the course of those 10 years would equate to money out the door. Outside of the comfort of knowing you’re insured, the business really has nothing to show for the premiums paid over that decade.

    With captive insurance, however, your business can retain profits when claims aren’t paid. Thus, allowing for a build-up of cash reserves and benefiting the balance sheet of your business. This makes captive insurance a very effective tool especially in times like now where many businesses have been left scrambling after the sweeping sanctions against Russia and high inflation.

    Related: This Insurance Strategy Could Save You Thousands

    Decide whether to exit a market or category completely or find a supplier not subject to tariffs

    Tariffs cut both ways, even though they exist to operate as barriers to prevent competing foreign products and businesses from damaging domestic industries. Just look to the specific industry of washing machines as tariffs introduced by the U.S. during the Trump presidency resulted in washer prices rising by almost 12%, according to economists at the University of Chicago and Federal Reserve.

    This resulted in domestic business owners being left having to pay their own domestic government tariffs for buying the products instead of the country they imported them from. As you can imagine, this has implications for international business owners as well, especially in industries like agriculture where the World Trade Organization cites 100% of products as having a tariff.

    Related: 2 Years Since Trade Deal with China, Tariffs Aren’t Working for American Businesses

    For the businesses and consumers that needed those washers, they were left paying the increased price for them instead of China or other countries targeted by U.S. tariffs. According to UCLA Anderson Review, additional studies have also concluded that the trade war hurt U.S. consumers and companies more than it did China.

    The example illustrates why having an international supplier that isn’t affected by the sanctions or tariffs faced by your company or products from your country is very important. This option is, however, mostly reserved for businesses that can afford to move major portions of their supply chain to other countries — making this option limited to few businesses. Partnering with a business in a country without the same tariffs or sanctions is also an option, but again, has many logistical complexities few businesses are prepared for.

    Although there are immediate implications concerning the sanctions against Russia that can potentially decimate a supply chain, it’s crucial for businesses to keep in mind that the impact will also be felt long-term. Trade wars typically slow economic growth. Thus, it behooves businesses to start now and conduct a risk assessment in relation to both the sanctions and the potential for an economic slowdown. Even if your business isn’t impacted now, it could be in the future.

    [ad_2]

    Randy Sadler

    Source link

  • Miso Robotics’ Global Expansion Aims to Provide a 17x Bigger Opportunity for Investors

    Miso Robotics’ Global Expansion Aims to Provide a 17x Bigger Opportunity for Investors

    [ad_1]

    Disclosure: Our goal is to feature products and services that we think you’ll find interesting and useful. If you purchase them, Entrepreneur may get a small share of the revenue from the sale from our commerce partners.

    Companies love robots working alongside humans. They don’t take days off and are incredibly reliable. That’s why, in a restaurant industry plagued by labor shortages, kitchen automation solutions from Miso Robotics have been gaining a ton of traction.


    Miso

    Miso Robotics

    After successfully automating kitchen operations for major U.S. fast food brands, Miso is sending its robotic assistants to the international market and allowing investors a chance to join them.

    Here’s why Miso may truly hold the key to the future of fast food.

    Miso helps make restaurants more efficient.

    From low wages to hot grease, people have found plenty of reasons not to work in fast-food kitchens. As a result, 500,000 new fast-food jobs go unfilled each month, leaving many brands in desperate need of automation solutions.

    That’s why Miso designed robots to cook food, pour drinks, and perform other repetitive tasks that humans prefer to avoid. For example, Miso’s Flippy 2 robot can fry, its Sippy robot pours drinks, and its Flippy Lite robot can fry and season items, most recently used by partners to make tortilla chips.

    All of these robots improve efficiency over time thanks to machine learning. And as a result, restaurant staff have more time to focus on customer-oriented service, knowing Miso’s bots deliver consistent quality.

    What’s more, Miso’s tech also addresses the fast-food industry’s longstanding tradition of low profit (average 5% margin) and rapid labor turnover, which have contributed to many restaurants’ lack of consistency and quality.

    With Miso, these are problems of the past. Its robots provide restaurants with a low-cost, user-friendly way to boost efficiency and have shown the potential to increase restaurant profit margins threefold.

    And thanks to the Robot-as-a-Service (RaaS) model, restaurants only pay a monthly fee for Miso’s tech, allowing them to see a positive return on the first day of operations.

    It’s no surprise that so many restaurants have already partnered with Miso, but this is just the beginning.

    Miso’s world tour.

    Many of fast food’s top brands have already adopted Miso’s AI-powered automation solutions. White Castle, Jack in the Box, Buffalo Wild Wings, and Caliburger are among many beloved restaurants that already have Flippys and Sippys lowering costs and boosting efficiency.

    But the opportunity for Miso to expand its footprint is even bigger abroad. Take Europe, for example, where brands spend up to 50 percent more trying to fill the labor gaps.

    That’s exactly why Miso’s landed a new international partnership that they expect will play a huge role in the company’s expansion to the 20-million-restaurant global marketplace — a 17 times larger opportunity than in the U.S. alone.

    With several top fast-food restaurants stateside and a global house of brands on the horizon, Miso’s believes it has proven that there’s a universal need for its automation solutions.

    Get in on Miso’s as it plans a global expansion.

    More than 20,000 investors have already realized Miso’s status as an early mover, giving Miso the chance to build a solid foundation and partner with America’s most formidable fast-food brands. Now, they are going global and raising additional funds to further innovation in a market where demand is even stronger than when they started.

    With a mission for global dominance up next, there will never be a better time to become a Miso shareholder than today. Learn more about Miso Robotics and how you can benefit as an investor.

    The opportunity to invest ends 11/18/2022.

    Miso Robotics is offering securities through the use of an Offering Statement that has been qualified by the Securities and Exchange Commission under Tier II of Regulation A. A copy of the Final Offering Circular that forms a part of the Offering Statement may be obtained from: Miso Robotics

    Entrepreneur may receive monetary compensation by the issuer, or its agency, for publicizing the offering of the issuer’s securities. Entrepreneur and the issuer of this offering make no promises, representations, warranties, or guarantees that any of the services will result in a profit or will not result in a loss.

    [ad_2]

    StackCommerce

    Source link