So, you find yourself in a position to purchase an existing franchise, whether it be from a friend, a colleague, or whomever. Logically, you are wondering: “How do I know if this is a good idea?” This is might be especially true if you have never owned a franchise in your life, or owned a business for that matter. You understand that there is much to learn about the business world, but you are prepared to dive in…but how do you know that the franchise being offered to you is a good business choice? Are you likely to succeed or sink with this business venture, and how can you tell? Well, though this article can’t definitively tell you whether or not the franchise in question will succeed or fail, it can give you some very common sense things to look for in the franchise you are considering.
First things first, when looking into a pre-existing franchise, you are looking at picking up a “resale” franchise, which of course simply means it’s being sold away from its original owners. Immediately this should raise up some red flags in anyone’s mind. You have to wonder: Why are the owners willing to sell their business, which one would imagine, they have poured their heart and soul into over the years?
Now, just because someone is selling their franchise does not necessarily imply that the franchise in question is doing poorly, there may be a myriad of reasons as to why someone wishes to sell their franchise. This can range from a wish to retire, moving out of province, state, or even town, a growing family responsibility, or maybe the franchise field just isn’t for them. However, discovering why someone is selling their franchise, and also finding out the franchise’s current state (monetarily and physicaly), are without a doubt the first and most important things to uncover before you purchase your resale franchise.
As obvious as this sounds, franchises can be simply broken into two groups. One: those that are currently financially stable and bringing in a profit. Two: those that are not currently financially stable and are either barely making ends meet, or not making them meet at all. Situation Two would make most franchise owners eager to offload their business, as many people don’t want to deal with the intense stress that such a situation can create. As such, without a doubt, the first thing to think about when considering a franchise is: Is it profitable! However, also take into account how you feel the business would handle itself under your control. Just because a business is not currently profitable does not mean it will stay that way and vice versa.
This all may take some digging on your part, research is key. Why is the franchise being sold? Do the current owners simply wish to retire, or are they trying to escape 60-70 hour work weeks with difficult employees and razor sharp profit margins? Is there some change in the area that will make a currently profitable business less profitable? For example, if you are purchasing a coffee shop, is someone about to open a new, better known coffee franchise across the street, which will certainly take a massive bite out of the current owner’s profits? Are there problems with the lease? Is the area being re-zoned? There are so many questions that need to be asked, I cannot hope to cover them here.
Asking the seller may get you some of this information, but likely not all of the information you need. Any seller will make his product (in this case, a franchise) look as pretty as can be from the outside, and will likely do their best to hide any negative information from you. So you’ll have to dig deeper, contact the franchisor, check all that the franchisee has doted all the I’s and crossed all the T’s. This may require some careful work on your part, as the franchisor will be just as likely to try and hide negative facts from you as the franchisee.
Basically, you must be incredibly careful before you take a leap of faith with a franchise. It may be a good idea to hire a lawyer to help with any contractual mumbo-jumbo you run into, as well as an accountant to look over the books to ensure everything is on the level. Although franchise ownership can be an exciting, and profitable option for those willing to spend the time on it, when it comes to a resale franchise, you must be extra careful, get all the help you can get, and make sure you know as much as you possibly can! This is only a very brief piece on “resale” franchise’s, there are many factors to consider when doing something like this, but hopefully this will give you at least a starting point on your adventure into business ownership!
Also keep in mind if you are considering buying a business such as this then you may want to have a small business accountant check out the financials of the franchise for you before making the big purchase move.
