Buy Existing Franchise Vs Start Up Franchise
The basic rule when thinking of owning any kind of business is the chances for success favor buying an existing business. There are pluses and minuses for either choice, but the statistics for success favor an existing business. The reasons become very obvious with a little study on the part of a potential buyer.
The cost difference
Is there a cost difference between the new franchise and buying an operating franchise? There can be quite a difference both ways depending on the financials of the existing franchise. If the business has good numbers and is showing a decent profit, it will be worth more than a franchise that is opened and started at a new location. The customer base has been started and, depending on the length of time the franchise has existed, the base could be significant and almost guarantee continued success.
The location can contribute greatly to the cost, as location of a business that depends on walk-by or drive-by traffic is valuable. A new franchise may not have the same numbers of people going by. This lack of traffic will show up in sales over time. An easy way to view this principle is to think about a two-week fair. If it is well attended, the merchants will do better than if there is a low attendance. The same is true of a corner business with or without traffic. The low traffic will mean lower sales. These facts are a proven difference between two businesses that depend on people stopping by the business.
Why is the owner selling?
This element of a sale of an existing business is critical when talking of price for the business. If the owner is burned out and tired of the day-to-day running of the franchise, it may be possible to buy a good business at a bargain price. Some owners will sacrifice some money just to get rid of the business. If they are really ready to leave, this can work in the favor of the buyer. Money talks and a cash offer with no strings may be all it takes to pick up a good business at a bargain price.
An estate sale or a sale that is brought on by divorce may also offer the potential to buy the business for a very good price in relation to what it is really worth. Hire an expert business evaluator and see what value they come up with compared to the asking price. If there is a significant difference in your favor and you can afford the price, seriously consider making the deal.
Existing traffic and road changes
Make it a point to see if there are likely to be any street changes or surrounding business changes that will affect the traffic that supports the business. This factor alone can make a huge difference in considering the purchase or not. Do not get surprised in this way as you can see the business die due to lack of traffic. This is not something you want to learn about after the purchase.
If the business is in a shopping center, make sure that the anchor stores are staying, as they supply the traffic for all of the businesses in the center. An active grocery store is always a good traffic builder for the other businesses in the shopping center.
If the business is in a rented property, make sure that the lease can be assumed or negotiated with favorable terms. If the business includes a building, make sure that you have the building inspected for possible repairs that may be needed. Again do not get surprised after the purchase.
Can all existing franchises be bought?
The answer to this question is it depends on the buy-back agreement the owner has with the franchiser. It may also depend on a clause called the right of first refusal. This clause gives the franchiser the right to meet the offer of any buyer.
So the answer is it depends on the agreement the old owner has in his contract of purchase when the purchase was made with the franchise company.
These terms can have a direct effect
With these possible restrictions, the franchise owner may want to sell, but the contract roadblocks may be too difficult to overcome except by selling it back to the franchise company. The reason for these buyback contract restrictions is the franchise company wants to control who owns a franchise Their contract rules may be so restrictive that the old owner has no choice.
Can a franchise contract be negotiated?
In most cases there is very little that the franchise company will negotiate since they do not want to lose control or cause problems with their other franchise owners. The more successful the franchise is, the less negotiating room there is likely to be in the purchase contract. They just do not have to make concessions to potential owners, as they can get whatever they need without doing any negotiating.
If there were some room for negotiating, a potential buyer would be wise to see what the other owners of franchises were able to finalize in their contracts. At least you know what was available in the past between the buyers and the franchise people. Knowing what was possible is absolutely an advantage to the negotiation of contracts between the buyer and the franchise company. If the deal comes down to something that you could not live with, walk away and try finding a different business venue. After all there are hundreds of franchises available to the people who want to own a business. Ask your questions and listen closely to the answers. If an agreement is drawn up, make sure you have it looked at by a good business attorney. Do not assume any thing that is not in writing and in detail if it is important to your decision.
All business purchases should be studied and broken down into a plus-and-minus analysis. When the list is down to a few, then a clear-eyed comparison should be made between the business opportunities. Ask yourself: do you have enough capital to make sure you are successful? Do you need to have a stellar beginning that may not happen? Is your business plan realistic or filled with best-case scenarios? If there are too many ifs in your plan, then it better be looked at again and revised.
Analysis of an existing business and ways to make it grow or become more efficient are critical to continued success. Getting answers to all of your questions and having the answers verified are steps that need to be taken seriously. Assumptions are for fools and lazy buyers. Do not be either, as it will cost you later. There are never any dumb questions. There are just dummies who do not ask the questions. Buying a business right is hard work. It is just part of the pathway to success for you as a businessperson. Verification of all answers is the secret to buying a business and keeping surprises to a minimum.
Bill Henthorn formerly was principal broker and owner of a resort / commercial real estate brokerage in Honolulu which specialized in representing sellers in transactions up to MM.He currently serves as the marketing director of http://www.acquireo.com