A decision to go into business
The Christmas and New Year holiday period is often used as a time of reflection. A time to get things into perspective and to become grounded with family life once again after a pretty strenuous year crust earning. This reflection will frequently raise questions about the balance of one’s life in relation to that spent in an office / behind a steering wheel / in yet more meetings, whilst not knowing when the call will come about your future employment, or lack of it. Such are the times in which we live and such are the drivers of thinking about going into business for yourself.
Franchising is clearly a logical option to investigate when extending this line of thinking. The well-known statistics about the security of a franchise system fully followed by enthusiastic franchisees as opposed to the high proportion of new start failures when going it alone are well known by readers of Business Franchise Magazine. Though buying into a franchise is a logical way to go into business it is a process that must be approached with eyes and ears fully open.
It’s one of the things I impress upon would-be investors looking at buying a franchise for the first time. Primarily they will think about it as a source of income, which on one level of course it is. But buying a franchise isn’t like buying a job. It’s a real investment, one that, with the right level of input, should ensure the business appreciates in value over the term of the franchise agreement.
Buying a new franchise, one with a territory for example, will involve the initial franchise fee payment, and will then require the input of the franchisee that, with the support of the franchisor, should market and grow the business until it is profitable. If, after five years – the typical term of a franchise agreement – the franchisee then wishes to sell, multiples of the initial outlay may be recouped based on the businesses success.
Buying an existing business (a franchise resale) is a slightly different story, requiring a greater amount of due diligence by the purchaser, and a more robust breaking down of the figures – particularly turnover and profit.
The upside to buying a resale however is that it is much easier to see how well a business has performed, versus how well a new business is likely to perform – fact versus projections. It’s an important distinction. What it means is that, while buying a new franchise can to some extent be ‘finger in the wind stuff’ buying a resale is more heart-warming as you know the track record of the business at the start. You hit the ground running with an already trading business.
With detailed provision of information by the seller and with careful assessment you, the prospective purchaser, will be able to unpick the business and see if there are areas where it can be improved. Has the former franchisee been as active with local marketing as you intend to be? Are there logistical elements to the business that can be tweaked to boost performance? What were the former franchisee’s personal circumstances – had they suffered illness or gone through a divorce? These are all things to consider when purchasing a resale as they give clues to where you might be able to take the business in the future. And it’s imperative to look at the business from all angles. A bit like buying a house – you need to see it at different times of the day and different times of the week…does that irritating dog of the neighbours bark all of the time?
You’re making an investment, and you want it to be as informed as possible. Once you’ve put ink on paper, you don’t want to discover that all of your imagined nightmares are quite real. Which is why using a service such as that provided by Franchise Resales genuinely helps to smooth what could otherwise be a challenging process for franchise sellers, potential franchise buyers, and franchisors.
In a nutshell, sellers require a structured approach because they want a swift and smooth sale of the franchise they’ve worked to build; buyers require one because they want to invest in a going concern but need to understand the detail of that business; and franchisors (with an entire network to worry about) want an experienced third party to handle the complex resale processes and remove the headaches that can come from brokering a franchise resale.
At Franchise Resales, we have real experience in making the buying and selling of a franchise as seamless as possible. This includes not only the provision of detailed information but also support with negotiation, the introduction of solicitors for the legal process and banks to secure funding – yes funding is readily available for Franchise Resales structured transactions. Most importantly we are there for support and to provide solutions should anything not go according to plan.
Enjoy the festive season ahead. This can be a time of reflection and some will use this time to contemplate their futures and explore the benefits of purchasing a franchise resale to start a new phase in their business life.