Existing Franchise for Sale – Top Considerations When Buying a Franchise
Buying an existing franchise for sale is much like buying an existing small business. It can be a quicker and safer way to owning your own business. When you buy an existing franchise you may pay a little premium, but the advantages usually offset the extra cost. For one, your business is already open and doing business. There are other advantages like an established track record, cashflow, customer base, and goodwill. It’s also much easier to get financing for an existing franchise with positive cashflow, than for a new, unproven franchise.
Franchise Re-sales: Know what You’re Getting In To
When you buy an existing franchise you can find out a lot about the business before you buy. Here are some of the questions and research you should conduct before buying an existing franchise:
Number of franchises nationwide
Find out how many franchises the franchisee has nationwide to determine if the franchise is well-established. Look for franchises with 50 units or more. This is especially important, if like most small business buyers, you will finance the purchase. Franchises with under fifty units can be difficult to get small business financing for.
Some SBA lenders require at the franchisor has at least fifty units before they’ll approve a loan. Find out how fast the company is growing and pay attention to the cancellation rate on new franchises.
Service or support level after the sale
It’s important to know the level of support will you get after you buy the franchise. You’re going to pay a franchise fee for these services. Ask about marketing and advertising. Be sure there’s not just initial training, but ongoing training.
Consider these factors:
- Will the existing owner stay one to three months after the purchase to train you in how the business is run?
- Does the franchisee offer training for new franchise owners?
- Call and interview other franchise owners. See if they are satisfied with the training and support they got from the franchisor.
- Read the disclosure document to learn if the company that started the franchise offers a training and assistance program.
- Ask how much technical, business management, and marketing training is offered.
The less experienced you are in the industry or type of business the more support you’ll need. Training and assistance is one of the main reasons people buy a franchise. Make sure the training offered is sufficient and will cover what you need to know to run the business day to day.
Number of franchises allowed in an area
Some franchise chains oversell their franchises. You’ll want to be sure that doesn’t happen. Find out the number of franchises that can be bought of sold in a geographic area. This ensures you don’t have competition from new franchise owners. Call existing franchise owners who operate in bigger cities and ask how this is handled.
Adjusted net income and how it compares to other franchises
Review the financial health of the franchise and get the adjusted net income. The adjusted net income is the total amount of cash produced by the business. It includes the profits, the owner's salary and all of the many cash-related benefits of owning the business.
See how the adjusted net income of the franchise you want to purchase compares to similar franchises. Buying an existing franchise has its benefits. Paying attention to these considerations will help you. In essence, you want to see the essential ingredients for business success and watch for warning signs of current or potential problems.
Search for an existing franchise for sale with these considerations in mind. When you find one, be sure to pre-qualify for an SBA loan so you’ll be ready to buy when you spot that ideal franchise.
© Peter Siegel, MBA - All Rights Reserved
www.USABizMart.com
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About The Author: Peter Siegel, MBA is the Founder & Principal of USABizMart.com - USA Businesses For Sale, one of the most popular business for sale related websites on the internet. He is also the author of three books on the topic of business sales and how to buy a business. The most current book is "Businesses For Sale - How To Buy Or Sell A Small Business". Mr. Siegel also writes a daily Business Opportunities Blog – at http://www.USABizMart.com/blog that covers all topics on selling, buying, valuing, and financing small to mid-sized businesses.
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