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Once you’ve got your business idea, you’re going to need funding for it. In the previous Franchise Insights video, Franchise Direct CEO Sean McGarry discussed how to go about finding financing your business. In the latest video below, he discusses the very delicate issue of equity.

Download to Business Insights #4 or view in the player below

“It’s what we call the debt-equity relationship: the balance of our own funds to borrow funds within your business,” Sean says. “The make up of equity is normally people getting together to front their own savings. They would decide to release some equity into their own home, or indeed, they could involve one of their family or friends.”

Involving other investors in your business start-up, especially loved ones or close friends,  can be a sensitive matter, and Sean urges entrepreneurs to be very clear and transparent when making your pitch.

“If you are approaching your family or a friend about your business, be very clear about what the business does, and what you’re looking for. Most important of all is what is the exit mechanism is for people trying to get their money out. How do they get their money back and when do they get it back. When we go into something with a family or a friend, we should be absolutely clear what their motives are, what our motives are, what the expectations are in relation to the return on that investment, and most important of all, the exit mechanism for that investment.”

If you decide to build equity from an organised group, Sean urges you to do all the necessary preparations.

“They will need a business plan. A clean plan that sets out what the objectives of the company are, what the return on the investment will be and what the exit mechanism is,” he says.

Finally, when pursuing equity, be sure your business idea has the potential for profit to make it worth the investment.

“Somebody putting an investment into your business is going to need a significant return on it. If you’re a start-up business, there’s a lot of risk attached to it in terms of the investor and therefore you’re going to have to be able to demonstrate clearly to them that if they put in a million dollars, they’re going to get a significant return on that. They’re not putting that risk money in for a return of four or five percent. That they can get in a much more secure way.”

Sean finishes by urging entrepreneurs to keep the exit mechanism in mind when talking to investors. Come to the blog next Friday for a brand new Business Insights video.

Yesterday we were discussing franchisees who are finding ways to succeed at this challenging moment. Today, we’d like to focus on tips for franchisees that might not be doing very well at the moment.

Business Week spoke with a number of consultants recently and published 11 tips for turning your business around. We think these tips are especially worth noting:

Anticipate Opportunities. In whatever form it takes, there will likely be a large influx of government money this year as part of President Obama’s economic stimulus plan. “With that much money flooding into the economy, of course there’s going to be an effect,” Paul Rauseo of George S May International says. “Prepare a strategy for tapping into it and you can take advantage of it.”

Minimize Layoffs. You may have no option but to cut some staff. However, do your best not to make sweeping cuts that will cause morale and productivity to drop among your remaining employees and drive other workers out the door, says Jason Zickerman, president and CEO of The Alternative Board, a Denver-based small business networking organization. Another negative—customers who hear that you’ve downsized may lose confidence in your company’s ability to handle a new order.
Resist Negativity. “All these crises are creating an opportunity we’ve never seen before in business,” Rauseo says: “It forces small business management to be more professional and more mature than it’s ever been. It’s time to seize the moment.”

Business Week has eight other tips for franchisees seeking advice on how to change their business prospects. Read them all here.

While there’s no talking down or dreaming away the economic downturn at this stage, innovative franchisees are still finding ways to make breakthroughs to consumers.

If you’re discouraged by the economic climate, examine this recent story in Entrepreneur magazine about franchisees who’ve made the big changes to their business to make it more profitable. Versatility and an ability to think outside the box are the things that will separate the franchisees who succeed from the franchisees who fail.

There’s Jay Palmer, who was having terrible luck finding funding for his barbershop franchise, until he took an investor into his barber shop and showed him exactly what makes his business unique. Now his franchise is soaring. And Michael Frampton, whose speciality restaurant franchise was looking to cut costs and found extra funding by focusing on two interesting areas: linens and energy costs.

We all know it’s tough out there, but some franchisees are showing the way to beat the recession. If anything, these tough economic times should serve as inspiration for entrepreneurs truly committed to success.

Given the reputation of franchising for triggering economic growth at times of severe economic downturns, many are now looking at the franchising community for the signs of growth that might lead us out of this recession.

So it’s encouraging to note that the US Conference of Mayor’s newly-formed Franchising and Small Business in Cities (FSBC) task force recently held its first gathering in Washington during the Conference’s Winter Meeting.

Douglas Palmer, the mayor of Trenton, New Jersey, who was head of the task force, wrote “My goal is to help us mayors better understand the franchise business world and what it takes to get them started in our communities.”

Matthew Shay, the president and CEO of the IFA welcomed the move. “Data show that the franchising industry outpaces many other sectors in terms of creating new business, new jobs and more economic output, even during tough economic times.”

The FSBC will re-assemble at the IFA annual convention in San Diego in mid-February.

It’s important to  see the mayors of our cities taking the importance of franchising into account. But don’t be complacent: be sure to stay in contact with your elected representatives to keep the rights of franchisors on the top of their agenda.

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