Buying a franchise lessens the risk of starting a business from scratch. Many executives choose starting out through a franchise as it gives them the groundwork of becoming an entrepreneur sometime in the future with their own business and also because they feel comfortable with a lot of aspects of a business such as taking care of managerial work, making calls, managing orders, employees etc.
However, you can further lessen the risk of a franchise business by buying an already existing franchise. Just like buying an existing business, an existing franchise will already have a customer base and a management system in place with ongoing revenues.
While any franchise is given support by the parent company and the management system as well as many policies that govern the running of the business are dictated by the parent company, buying an existing franchisee still has advantages. You can check the local classified ads or visit the business of resale network www.businessresale.net which has many thousands of business that are available for resale.
When you have found an existing franchisee that is for sale, the steps for evaluating the business are the same as we have mentioned about choosing the right franchise. However, you are likely to get a lot more information from an existing franchise that is for sale. Because this business owner wants to sell, he will be more cooperative in giving you details of the business and hard facts.
However, just as it was the case with buying an existing business, the cost of buying an existing franchise is probably going to be higher than taking a new franchise from the parent company. This purchase price can be 2 to 4 times that what you would pay for new franchise from the same company
Because you are going to pay so much more money it is even more important to have the audited financials financial statements and have them reviewed by a continent.
All of the procedures of investigating the business and its legal standing with your lawyers such as previous litigations and judgments if any, bankruptcies, complaints and violations with the Federal Trade Commission all need to be looked into. The assistance of an attorney is imminent and important.
In some cases you might discover a franchise that is not doing well. It is your job to evaluate what the reasons for the failure of the business days. The current owner could be doing something wrong such as not implementing effective marketing and advertising strategies or isn’t putting enough effort in the system correctly.
It is crucial to analyze this factor with the help of your accountant and your attorney. You may even take the help of management expert. You should be able to determine that the problem is something that you can correct and bring the pro-business to be profitable.
There are franchises for sale because the current owner is not making enough money or is running at a loss, you may be able to get the existing franchise at the same cost as from a quarry even lower than what you would have paid for a new franchise from the existing company.
Analyzing franchise running at a loss before you buy it is important because it’ll probably take some time until you can implement your new methods and strategies in order to turn the business from a lossmaking business to a profit generating one.
However, in the meanwhile you will have overheads to pay for the business. So while you purchase a franchise yet a certain cost, you will have to pump money into it for a certain duration of time before the franchise starts to generate an integrated.
One of the most important questions to consider and the first basic one that you should ask is why is the business for sale? It is possible that even though the franchise is thriving and generating profit, the parent company may not be doing so well.
In certain situations when the franchise owner knows that the parent company is going to face financial problems in the near future they might try to unload their business before the company.. Also analyze the systems, accessibility that you would get from the existing franchise owner when you buy it. Do not settle for anything less than what you’d get if you were to buy a new franchise.
- Buying existing franchise to cut down risk.
- Better assessment of risk and potential earnings.
- More expensive.
- Ask franchiser for existing business for resale.
- Visit business resale network.
- Have numbers audited by a CPA.
- List of questions to ask the same as when buying a new franchise.
- Buying a franchise in trouble, make sure the problem is something that you can fix.
- The parent company for the franchise should not be in trouble.