26 Apr Buying Franchise Re-sales (Part 2 of 2)
This article is a continuation from yesterday’s posting by Adam Bannister of businessesforsale.com.
It’s also important to meet with existing staff before you buy. You need to know how many will stay, and what it will take – in terms of pay rises and other incentives – to make unhappy staff stay.
If staff have to be replaced you need to find out how much it will cost to hire and retrain replacements and incorporate that into your evaluation of the business.
And if you don’t get on with the staff or feel you’re at odds with the culture of the company then it’s best to look elsewhere.
You need to check the company’s financial records for the past three or four years. When you check the seller’s financial records you could check them against those of other franchises. If other franchisees are performing better then is it because of low demand in the area or mismanagement? If it’s
mismanagement then can you turn it round?
The business may be discredited due to the poor performance of the previous owner – in which case disgruntled customers can be harder to win back than new custom is to attract.
If the previous franchisee made a good profit – say £100k for each of the previous three years – then you have a good chance of doing the same. You can be confident of this with a franchise, because you will adhere to the franchisor’s time-honed business model, and so will be running the business in a similar way to the previous owner.
This is, however, conditional on all other relevant factors remaining the same.
If the business is so profitable then you need to question why the owner is selling. Perhaps it is because all other relevant factors are not going to remain the same.
It might be something to do with the business, or it could be to do with external factors. For example, are the demographics of the area changing in a way which reduces your pool of customers? Has competition intensified? Is there something about the franchisor and its systems the previous owner doesn’t like?
It’s worth asking their motivation for selling, although you’re not likely to be told anything too negative as they will want to make a sale – so also ask other franchisees to get the lowdown on the franchise.
Don’t be automatically put off by the fact that the franchise is up for resale though – a franchise is not the sort of business you pass on through the generations. Many franchisees buy a franchise with the intention of selling it for a profit somewhere down the line. People also sell because of retirement, illness and other personal reasons.
Buying a franchise resale is an attractive option because you can hit the ground running. Just don’t let your impatience to get going compromise your rigor when researching the business – and make sure you get a good accountant who knows about franchising.