5 Ways Clients Can Avoid Losing Money Investing in an E-2 Visa Business

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5 Ways Clients Can Avoid Losing Money Investing in an E-2 Visa Business

By: Patrick Findaro, Business Development Director at Visa Franchise

Since co-founding Visa Franchise, we have spent thousands of hours searching and analyzing E-2 visa businesses. We have reviewed over 1200 franchises and licensed brands that might be eligible for the E-2 visa. Less than 8% of the businesses pass our due diligence and far less are presented to any one client based on his or her individual and family profile.

Over the past years, we’ve identified five ways to protect the downside investments made into E-2 visa businesses:

  1. Make sure the business model is proven and sustainable

Many immigrant investors see the United States as the land of opportunity and covet the business structure that fosters entrepreneurship. Largely, for those exact reasons, the United States is the single largest market in the world as well as the most competitive.

A pizza business that might work in Italy or a noodle business that might have strong margins in China often fail in the U.S. The market is quite consolidated and major companies and franchises have negotiated terms with landlords, suppliers, and other stakeholders necessary to conduct business. Many independent businesses from abroad open throughout the U.S. and they tend to fail fast.

Before investing and/or starting a business in the U.S. for your E-2 visa, make sure the concept is ALREADY proven in the U.S. and that it will be sustained through economic downturns. Do not make the same mistake three major Brazilian restaurants (Coco Bambu, Paris 6 and Madero) made when they entered the Miami market and left only a couple years later.
We focus entirely on franchise/licensed businesses with 3+ locations open and net positive cash flow over one year. Many of the companies we have on our platform have been continuously operating for 30+ years.

2. Beware of existing businesses for sale

Why would you sell a business if it were doing so well? If you would sell it, what would be the price? Most of our clients investing in E-2 visa businesses allot $200,000 to $350,000 (including working capital) for the business. If an existing business is performing well, generally it will sell for 4-6 times the net profit.

Are you willing to invest $500,000+ for an existing business? Will you contract an accountant to conduct a forensic due diligence every time you evaluate a business? If the business is selling for 2 or 3 times profit, often times it is HEAVILY reliant on the owner and the relationships he or she has built over the years AND there is significant risk that the profits will evaporate once you take over the business AND the business does not have enough margin for a day-to-day manager and you might become a slave of the very business you purchased.

Are you prepared to trade your corporate work to clean bathrooms and scrub sinks when your employees do not show up for their shifts?
Some of our clients had spent $5,000+ analyzing business with over-stipulated financials (and other forms of fraud) before they started focusing their efforts on evaluating proven franchise concepts with the guidance of the Visa Franchise team.

Also, beware of any existing business that sounds too good to be true, as there have been a number of fraudulent businesses that we have identified in the E-2 market.

3. Investigate who you are engaging in business and how they might act when issues arise

Are you thinking of investing in a business with a partner? Are you evaluating franchise and licensed businesses? Where will additional capital come from in case the business can not support itself?

In whatever contract you sign, it is essential for a licensed attorney specialized in that law (whether corporate or franchise) to review the documents. These documents, including the franchise agreement for franchises or operating agreement for joint ventures, will dictate the terms of what happens if the business does not go as planned. Also, what happens if you need to leave the United States for personal or professional reasons? Even if not dictated in the contract, you should have an idea of a few possible exit strategies in the worst of cases.

It is essential to speak to existing franchisees, especially those who have been in the franchise system for many years, to understand how the franchisor acts in the worst of times and how the franchisor supports the franchisees.

As for the joint venture business partner, what makes them uniquely positioned to support the operations of the business you are investing in? Why do they need an outside investor over traditional bank financing? Do they give a personal guarantee on the lease making them financial responsible above and beyond the obligations of the LLC or corporation?

Be wary of entrepreneurs who have shifted between industries, moved cities, and do not have fixed roots. These shifty characters have less to lose than a businessman who has long lasting professional and personal relationships that could be tarnished in the local community the business operates in.

4. Identify what you are looking for from the beginning and who will help you meet your objectives

What will your partner be responsible for should it be a franchisor or more day-to-day operational partner? Are you willing to work 20, 30 or 40+ hours a week? What does the profitability of the business need to be so that you can renew the E-2 visa and it is not seen as marginal in the eyes of the official at the U.S. Department of State who reviews your case.

Some of our early high-net worth clients invested as little as possible (generally $100,000 to $170,000) in an E-2 visa business. Generally, in lower investment ranges, the E-2 visa investor must work 40-60 hours a week.

Augmented by language and cultural differences, some of the businesses have struggled to keep a sufficient profit margin given the owner’s lack of interest in putting in the hours and hard work required to start and maintain that type of franchise business.

For wealthier, older individuals, it might be best to consider a business investment that has committed ongoing support by the franchisor or hired operator. Finding a trusted operator is one of the most difficult tasks when making a small business investment and it is important that you make references and do your due diligence.

5. Avoid low margin and/or non-renewable revenue businesses

Many immigrant investors ask us about gas station investments and how they can obtain and E-2 visa through one. Most gas stations in the U.S. are owner operated and often have too low margin to hire a day-to-day manager. Is it your American dream to work 10+ years at a gas station?

Many industries like logistics, gas stations, and retails have razor thin margins. Technology companies like Amazon are not making it any easier for independent operators and franchisees in those industries. If you are going to have a lower margin business, make sure it has renewable revenues.

Renewable revenues come in the form of customer payments that you can rely on either, daily, weekly or monthly. An example would be a nail salon that might not have as high profit margin and high rent but has a VERY loyal customer base that grows by the day and comes back at least once a month.

Conclusion

There are risks with every business investment but it is especially important to limit risks when your family’s visa is tied to the investment. By conducting a thorough due diligence and working with trusted advisors, you can limit those risk and meet your immigration investment objectives!

About us


Visa Franchise guides investors in identifying and analyzing the best investment opportunities tailored to their specific objectives.

We are the trusted advisor for foreign nationals who qualify for the E-2, L-1 or EB-5 visa and would like to own a U.S. franchise, with a minimum investment amount of $150,000.

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