10 Tips On Buying A Franchise Resale
If you are in the market to buy a franchise opportunity, buying an existing franchise - known as a franchise resale - could be a better option for you. In many cases, the cost of starting your business will be reduced, and there is less startup time and headaches involved. There are some important things to consider when looking at existing franchise opportunities. Here are some tips to consider.
1. Ask how many owners have operated the franchise in its current location, and over what period of time. Too many owners in a short period of time may show that either the franchisor isn't offering enough support or that the location doesn't work for that business. Find out why the current owner wants to sell.
2. Find out what will be required should you buy the franchise, then later decide to sell. Can you only sell after a certain amount of time? Can you sell the franchise to anyone of your choosing? What restrictions are there?
3. Find out how many franchisees sell out each year company wide? If possible, find out who those people are and contact them. Make sure that company owned outlets are not actually failed franchises that have been bought by the company. Also, find out how many franchise agreements were terminated by the franchisor. A large number of terminated agreements may indicate a problem.
4. Talk to current and former franchise owners. Be wary of franchises that the company suggests for you to contact. Also, double check the information the franchise owner gives you with the company, and double check the information the company gives you with the franchise owner. This will help to ensure that everyone is being honest.
5. Read the company's disclosure document. This may also be called a Franchise Offering Circular. This document should tell you business background, litigation history, bankruptcy history, costs, restrictions, grounds for termination of the agreement, training and support information, advertising information, earnings potential, financial history, and current and former franchise information. Make sure you read the entire document and that you understand it. Give a copy to your attorney as well.
6. If the building that houses the business is leased, talk with the owner of the building. Make sure that the lease will be transferred to you without a problem, and that it won't expire right after you take over the business. Also, check with the county or state to make sure that no future road construction is planned that will require you to move your business, or that would alter the accessibility of your business to customers.
7. Check the company out as thoroughly as you can. Check with the Better Business Bureau for complaints against the company. Have your banker get a Dunn & Bradstreet report on the company. Also check any state or government agencies that may relate to the company. Get a copy of the companies financial statements and have an accountant go over them with you.
8. Find out if the current employees will be staying, or if you will need to hire an entirely new staff. Having employees who are already trained is a big plus - especially in the case of managers. If possible, talk to the employees. They may give you information that the current owner didn't want you to know.
9. Investigate market trends for that type of business in the location it is in. Is the need for that particular service or product strong? Will it be strong in the future? What is the current competition and the potential for future competition?
10. Find out if the current owners agreement will be transferred to you, or if you will need a new agreement with the franchisor. In most cases, you should not be required to pay a new franchising fee, but you may be required to pay a transfer fee.
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