Buy an Existing Franchise Confidently
If you are in the market to buy a business, one of the first steps is to narrow down your criteria so you don’t waste time and money look at options that simply won’t work. The normal criteria to help narrow down the search for a business includes price, geographic location, the owner benefit or profit from operating the business and industry type, for example, retail, manufacturing or service etc.
Another option which business buyers have a fairly strong opinion about are whether or not the business is or is not a franchise.
In a previous article called “How to buy an existing franchise,” I looked at why buying a franchise is different to a privately held business including some of the disadvantages of buying an existing franchise.
If you are in the market to buy a business and your criteria includes being willing to buy an existing business that is a franchise, here are some suggestions to give you more confidence and to have a successful outcome.
These steps apply once you are ready to make an offer.
Some of the steps are different to buying an existing business; hence the reason for this list.
- Prepare either your Letter of Intent or Purchase Agreement to present to the seller.
- Negotiate and finalize your offer as far as you can. That is, it will have contingencies and that’s perfectly fine.
- Start your due diligence process. There will be a number of items to check as noted below but the immediate focus is the financial statements of the seller and what they are representing. If you or your professional advisor are not comfortable with the financial statements, there is no need to go any further.
- Obtain a copy of the Franchise Disclosure Document (FDD) either from the seller or the Franchisor. This includes understanding if you will operate under the sellers FDD or will work under a new FDD that the Franchisor provides. Additionally, get a clear understanding of the Franchisor’s qualification process to make sure this is what you are willing to do.
- If your offer requires any third party finance, start and move through that process.
- Negotiate with the landlord; if this is applicable.
- Complete your franchise due diligence of the Franchisor, conversations with Franchisees and whatever else you need to get in place. Some Franchisors require the buyer of the franchise to attend training by the Franchisor prior to the close of the sale, some prefer it to happen at a later date and some are comfortable with training just from the seller.
- If all contingencies are ready or are able to be removed, open escrow and work through that process including any additional requirements specific to the type of business you are buying. Some transactions may require escrow to open at the start of due diligence; it varies for different reasons.
- If everything is now a “go”, with the help of the escrow company, bring everything together and close escrow.
- Start training be it just from the seller, just from the Franchisor or a combination of both. By the way; congratulations. You are now the owner of the franchise with all its responsibilities and rewards.
Buying a franchise, be it an existing franchise or a new franchise is not about “being right”, it’s about getting all the information, understanding what’s important to you and how, where, when and why you fit in and then making the best decision you can be as confidently as possible.
If you’d like more information on the steps to buy an existing business or franchise, feel free to get in touch today for a consult, and together we’ll talk about your goals. We’ll discuss what’s important to you and why and the options available to you.