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Going for the Whole Enchilada

Q: My company has owned a small group of Mexican restaurants for eight years and we're currently looking for a way to take the business to the next level. How do I expand into a larger arena? Where can I find investors to help? -- A.R., Gainesville, Ga.

A: There are a couple of options to research at this point. One possibility is to expand into new locations by bringing in advisers and investors who will help you establish a chain. The other idea is to develop a franchise concept and begin selling outlets -- in effect, letting franchisees finance your company's growth.

Either way, you will need considerable help and advice from attorneys,

consultants, and accountants with expertise in the restaurant industry, the sort of people who have helped other small operations expand.

To find the right advisers, attend restaurant-industry meetings, network, and get to know owners and executives who have built successful chains. Find out how they made their outfits grow. Which investment bankers did they use? Which consultants, accountants, and lawyers were involved? Ask for referrals and then follow up on the contacts.

"This process could take a year, but it will save [you] time and money in the long run if you find out how other companies raised capital and...which advisors they used," says John Hamburger, a restaurant consultant based in Roseville, Minn. As a good place to start networking, he recommends the Restaurant Finance & Development Conference his consultancy is sponsoring for fall, 2002.

CHEWING IT OVER. Whether you choose to expand into a chain or franchise your concept, you'll need to identify and attract investors. Look for potential partners who have exhibited interest in the past in your type of operation, says Arlene Spiegel, a New York City-based restaurant expert with Arlene Spiegel & Associates. Your options might include selling partial ownership to a major brand or supplier, or you might consider bringing in a financial-services firm willing to bet on your company's future.

Potential investors will be looking for a good concept and a strong business plan. In order to persuade them that you have what's needed, Hamburger recommends "benchmarking" your company -- gather data on your initial investment, sales, income, and returns -- and compare your findings against some of the leaders in the restaurant industry, particularly in the Mexican niche. "If [your operation] compares favorably, then you can think about finding outside investors. If it doesn't, forget about it," he advises.

Before you make your pitch, figure out how much your company is worth now, the capital you'll need to expand (you may want to bring in an adviser to help determine this), and how much control you're willing to give up. Then, develop a strategic business plan that includes information on:

The market demand and opportunity, including growth in the Latino market

Your company's past performance, including company and unit economics

The unique brand attributes of your concept (what makes you different from the other Mexican food chains out there?)

Your strategic marketing plan, and

Your concept for expansion, whether that will be through franchising, private investors, strategic partnerships, or an IPO.

"The key is to understand how your company's strengths can benefit another company's weaknesses," says Spiegel. "Do you have geographic dominance? Proprietary business or culinary processes? Every little nuance of your business needs to be assessed for strengths which you then position to a strategic investor or partner whose weaknesses can be overcome by partnering with you." Good luck!

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