About Purchasing an Existing Franchise: Investigating a Franchise Resale - Cover Your Bases

ying an existing franchise will give you a solid franchise education! Here is a primer on how to go about studying an existing franchise:

1.   Be discreet. Most sellers will not broadcast that the business is for sale. This is positive for you, and for the seller. Selling a business requires time, and it is in everyone's best interest that employees and customers don't spend time concerned about "what ifs."

2.   Study the franchisor.  Do this precisely as you would if you were interested in buying a new franchise. Do this first - before spending time looking into the existing franchise unit. Recall, you will be signing a multi-year agreement with the franchisor, not the seller. You want to like the business and trust that you and the franchisor will work well together. See chapters 10-12 of the franchise book The Educated Franchisee for particular steps to take in assessing the franchise opportunity.

3.   Meet the Owner. Once you are satisfied that the franchise conforms to your skill set and can fulfill your financial and lifestyle needs, make an appointment with the owner of the franchise unit you are looking at. You will want to collect a lot of franchise information, including why s/he wants to sell, and you'll want to study the history of the franchise's financial performance. The seller should supply balance sheets, income statements, tax returns and other financial statements. Check them with the franchisor to determine how they match up with other franchisees' figures. Hire an accountant knowledgeable with this type of business who will look over the figures as well. This information will be decisive to your decision and will obviously be a crucial factor in arriving at the price you will offer.

4.   Call Other Franchisees. It is unlikely the selling franchise owner will tell you the downsides of the business. You will have to execute your due diligence to discover if there are internal or external problems that make the business undesirable. Talk to other franchisees to gain a feeling pertaining their level of success and then use what you have learned to the local franchise you are looking at purchasing.

5.   Explore External Changes. You might also want to pay a visit to Town Hall and inquire if any large projects are slated for the area where the franchise is placed.  These types of projects can be positive or negative.  You want to recognize what is happening in the area where the business will be and be at ease that any changes that may take place.

6.   Find out About the Employees. If you are pleased with the answers you get to the above questions, move on to questions about employees. What are their salaries? What hours do they work? Are they skilled? Are they likely to stay on? Are there any employment agreement* or understandings, salary disputes, etc. outstanding?

7.   Examine the Physical Plant. If things are going well, look into location and equipment, which will further help you put a value on the business. You need to know the status and terms of the lease, the temperament and availability of the landlord, and the value, age and shape of all equipment and vehicles.

To guarantee purchasing an existing franchise will be successful, you must do your research. Make certain you like the business model and the franchise management team. Make certain you'll like what you'll do each day. Understand the financials. Use experts to help you in your evaluation. Dig deep for information within the company and within the community. And remember that purchasing a business is a negotiation. Make certain the price is fair and that you own the skills to make the business a great success.

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The Educated Franchisee is dedicated to franchise education through the sharing of franchise information.  Our objective is -

‘To create educated franchise buyers that have clearly defined objectives and are able to recognize the right, or wrong, franchise when they see it.  An educated franchise buyer will move into the franchisee role with their expectations properly set and will have a heightened potential for success within the franchise system creating a win/win for all involved.

To get more franchise information about how to stack the deck in your favor -

Visit our website at www.educatedfranchisee.com or

Purchase our franchise book - The Educated Franchisee by Rick Bisio, Franchise Consultant or

Contact author directly at rbisio@educatedfranchisee.com or call 941 778 4660.