This is a great time to buy a reseller franchise. Why? for many reasons. First of all, over the last 20 years many franchises have been successfully built and managed by their dedicated owners and now that baby boomers are retiring, their children do not want to continue the family franchise business.
Let’s face it, some kids grew up with and in those businesses, whether it was KFC, Subway or Jack-in-the Box and the like. They just don’t live up to the expectations of the new generation.
Second, after watching their parents and relatives work in the various franchise systems, the children “heard” the other side of owning a franchise when their parents came home from a hard day’s work and complained about how hard it was getting and how tired they were. They were; They don’t want to be in those same shoes.
However, precisely because these owners have built good businesses, it makes franchising more attractive to new entrants into the proven system as new opportunities fade and territories develop; brand maturity level and location can become a great investment in an ongoing business from the point of view of someone who is leaving the corporate world to be their own boss, or one who is simply considering a sound business investment for the first time. Others have amassed sufficient funds for retirement and have built substantial shares in their homes, providing a good source of funds for a healthy down payment and low debt repayment schedule, leaving an adequate supply of business cash flow to enjoy. .
So I say buy well, from a tried and trusted brand and follow these tips:
1. Don’t overpay for business and keep the numbers real. Get a franchise valuation if you’re not sure what the fair price is
2. Do not pay for projected future earnings increases or unreported cash sales; stick with past performance and whatever you earn extra through your hard work is a return for that work and for which you should be compensated when you sell
3. Apply for seller financing for about 50% of the price you agree on; If he believes in the location of his business and the franchise system, he must support it, as long as he follows that proven system. You may need to provide another guarantee.
4. Do your due diligence and talk to other franchise owners in that franchise to test your own experiences; you’ll be amazed at how forthcoming they are with details
5. Calculate your Return on Investment in the franchise vs. other safe investments; remember to add principal accumulation as you pay off the note as part of your analysis
6. Analyze all trespassing and due diligence issues; request a seller’s disclosure statement for added protection
7. Check franchisee turnover for that location and customer reactions at the location to see where you can improve; After a while, some franchisees put their stores on “cruise control,” which is another indication that operating standards and customer service levels may have begun to slip. These are great opportunities
8. Decide on a time limit that you will devote to that franchise system, before burnout infects your own behavior and efforts; then it will be time to draw fresh blood and sell and so the cycle continues.
9. Recent adverse publicity and litigation may indicate a good buying opportunity. Research.
10. Only buy a business that has good books and records and is presentable
Simply put, the biggest problem with buying an existing franchise is not doing your homework in the following areas:
Inaccurate cash flow analysis (owner compensation, debt service)
Paying too much above the market price (a franchise valuation can be a good guide)
Brief due diligence investigation on the franchisor (Subway, Quizno’s, Schlotsky’s)
Inadequate comparisons of industry competitors and newcomers (Extreme Pita, one such example)
Trust what your uncle says completely instead of getting an independent second opinion
Adhere to an already expired and saturated franchise, without territorial protection
Fail to interview a cross-section of franchise owners and experts and keep an open mind
Incorrect structuring of the deal as a cash event, without any financing from the seller
There are plenty of great franchises available for resale, go for them!
