Perhaps it has always been your dream to own your own business and call the shots. Yet somehow you ended up working for “the man.” Maybe it was the security of a weekly paycheck, or fear that you just didn’t have the experience to start and build your own business that kept you on the sidelines. Today, you have so many options available to you. You can realize your dream. The franchise business model is a popular choice for many looking to start a business because of the built-in management, purchasing power and marketing advantages. There are many different franchise opportunities available in nearly any type of business you can imagine. So how do you find the best franchise for sale? Do you open a new franchise, or buy an existing one? It takes a lot of research and experience to make the best choice. Let’s take a look at some options, and what factors you should consider when analyzing a franchise.
Start with Yourself
Before you begin looking for a franchise for sale, you need to take a self-assessment. You can’t begin to identify the best opportunities until you examine your skills, interests, and experience. Where do your strengths and passions lie?
Examine your financial profile. This is a critical component of what will be available to you. Franchise opportunities come in all shapes and sizes. With a little research, you’ll find a franchise for sale that will fit your budget. Knowing all your funding options so you don’t have to fund the entire investment up front is crucial as well. Understanding your strengths, capabilities and available capital before you begin to evaluate opportunities will make your search much more effective.
Also, consider your lifestyle goals. Are you interested in being a “hands-on” owner? Are you looking for a business where you can train others while you focus on building other businesses? These are important considerations that will help narrow your choices as you explore your options. Some entrepreneurs find it helpful to discuss these with an experienced franchise consultant that can help you fine-tune your answers.
You’ve Defined Your Needs; What’s Next?
Once you have assessed your skills and defined your goals, you are ready to begin searching for franchise opportunities. Even having narrowed your potential choices, you will still find hundreds of potential opportunities.
You could literally spend months scouring the web, requesting information from franchisors, and attending franchising expos. At this stage in your research, it may make sense to put together a team to help you.
Consider working with a franchise consultant. They can do a lot of legwork. You may also consider adding a legal advisor with experience in franchising, and an accountant (if you don’t already have one) to help review and prepare financial documents.
Working with Your Team
Your franchise consultant should help you to narrow your choices. Once they’ve provided you with viable options based upon your needs, you still have plenty of research ahead of you.
You should begin to obtain documents like the Franchise Disclosure Document (FDD) which you can then pass on to your legal and financial advisors. While they are going over the fine points, meet with franchisors to allow you to assess whether you fit in well with their business. You should also arrange to interview other franchisees. Talk with as many as possible and be prepared to ask the hard questions. Existing franchisees are in the best position to give you a true read of what your experience will be as an owner. Make the most of any opportunity you have to speak with these valuable resources otherwise known as franchisees.
By this point, you’ll have a good idea of which businesses will best meet your goals and expectations. This is the point to dive fully into the details with your team. Examine franchise disclosure documents, determine the nuts and bolts, and begin to understand yours and the franchisor’s obligations and goals should you choose to move forward toward a deal.
Considering Buying an Existing Franchise?
A viable option if you’re on the hunt for a franchise is to consider buying an existing franchise. An already-operating franchise has some definite advantages, including the fact that there are so many more known entities because the business has a track record and hard data. Buying an existing up and running franchise is attractive for a number of reasons including:
Often, business is being done and the company is already making money. Cash flow is important, and an existing turnkey business may already be showing a profit.
A proven revenue stream is especially positive if you are trying to secure financing from banks or financing companies. It should be easier to get a small business loan on a business that has current income and a proven track record. Lenders can analyze existing and past financial records and make recommendations based on what they discover.
Beware that when you buy an existing franchise, you’re paying an exact price/earnings ratio for a business. This means you will be paying a premium for cashflow. These often are much more expensive than starting the same franchise business as a new location. There is no “investment range” as there can be when starting up a new franchise. Franchise businesses can be valued in several different ways, including:
Asset Valuations – Calculating the value of all business assets to arrive at a price.
Liquidation Value – The value of assets if the business were forced to sell them all in a short period of time.
Income Capitalization – Future income is projected based on historical data and a variety of assumptions.
Income Multiple – A multiple of net income is applied to determine a selling price. A reasonable multiple is typically based upon the selling price of other “like” businesses.
When buying an existing franchise for sale, there are some disadvantages you should consider before making a final decision. An experienced consultant can help you make this determination. Potential disadvantages include:
The Franchisor Still Has the Final Say
You can’t just walk into a franchise, make an offer, and become a franchisee. You will need to be approved by the franchisor.
You might think that because it’s a franchise that the business systems are in place and everything is in perfect order. This isn’t always the case. The existing franchisee might keep sloppy books. You inherit your predecessor’s accounting issues. However, even if the books are immaculate, you will still need to have your legal and accounting team go over everything.
In a perfect world, the best employees will stay on after you take over. Sometimes it can be negotiated as part of the deal. But what if the employees are part of the problem? You may need to be extra diligent as existing employees decide to take advantage of the turnover to walk inventory, or even cash, right out the door! Again, a good consultant can point our potential dangers, and help mitigate your risks.
The healthier the business is, in many cases the more risk you carry if you buy t — which is contrary to what most believe. The healthier the business is, the more money it is kicking off, the more perfected it is, in many cases the more risk you carry on the asset side, while at the same time, gaining the cash flow.
Harder to Identify
If you look out there, there’s all different kinds of businesses for sale. You have the broken businesses which are what most of the businesses you’ll see. These are businesses that don’t work, they’re not for whatever reason making money, the owner is trying to get someone else in there because they are giving up on it and they want someone else to buy them. The risk with that of course, is why is it broken and can you actually fix it? How much is it really going to cost to fix the previous mistakes to get it on the right track to begin with? The ideal scenario is finding one that’s not broken, but not making much money where you can build value into it. The problem? These are really, really hard to recognize because it’s hard to tell the difference between that one and the one that is just plain broken.
Conclusion – Find the Best Franchise for Sale
If you’re considering changing your life and starting a business, a franchise can be the perfect opportunity. Examine your motives and goals, put together a team, and make sure you do your due diligence.
Whether you choose to invest in a new franchise or purchase an existing one, a good franchise consultant will help you to get up to speed, offer you the support and guidance on what you need to do to succeed, and can be an important ally as you start the next chapter in your life as a business owner! Please contact us at 303-223-3673 and let us help you find the best franchise for sale.