It’s no secret that the sooner a business opens its doors, the sooner it can start making money. This is one reason new entrepreneurs often choose to buy a franchise, instead of starting a business from scratch. But an even faster way to get up and running is to buy an existing franchise from another owner.
If you’re interested in buying an established franchise, what franchisors call a resale, here are six things you must know.
- Why the current owner is selling.
Maybe they’re relocating, retiring, or have some personal issues that require them to step back from running the business. But the reason could lie within the business itself. Are they losing money? Having trouble finding staff? Not getting the support they need from the franchisor? If they’re selling because of problems with the business, this could be a red flag, or at least a yellow flag for you. If you buy the franchise, you may be buying the problems that come with it.
The current owner may not be forthcoming about these issues, so you’ll need to do some research to find out the whole story.
- The value of the business and its financial performance.
Looking at a company’s finances is a good way to tell if it’s having problems. The IRS suggests businesses keep financial records for seven years, including income statements, balance sheets, cash flow statements, and profit and loss statements as well as any outstanding debts. A deep dive into these documents can help you determine if a problem exists, and if the company is so far in the red that it’s not worth taking on.
But the value of the franchise is more than its financials. Is the equipment in good condition, or will it need to be replaced soon? How much inventory is on hand. What other assets add to its value? And maybe most important of all — how is it perceived in the community? You can always buy more equipment and inventory. But if potential customers see the business in a negative light, a sign proclaiming “under new ownership” might not be enough to convince them to give you another chance.
- How to train your staff.
Customer service is key to running a successful business, and if your employees are surly, or disgruntled, customer service will surely suffer. Consider who’s working at the franchise you’re interested in buying. Will you have to let some of them go? Will it be hard to find qualified workers because of the job market? A shortage of employees may mean you’ll have to put in more hours than you planned.
- The requirements of the transfer.
Sometimes, the franchisor will retain the right of first refusal, meaning that if the franchisee decides to sell, they must first offer the franchisor the chance to buy it back. Before you decide to buy an existing franchise, make sure the owner has the right to sell to you. Also, be aware that the franchisor will charge a transfer fee. You’ll need to work out with the seller who will pay this fee.
- Your obligations as a franchisee.
When you buy an existing franchise, you’re under the same obligations as you would be if you started a new franchise. Review the franchise disclosure document to make sure you understand the terms of the agreement: how long it is, the possibility of renewing the deal when it expires, what will be required of you, and what the franchisor is expected to provide.
- How the franchisor does business.
It’s a mistake to choose a franchise simply because it’s affordable. You want to find one that is committed to your individual success.
One reason buying a franchise resale is better than buying an independent business is the support you will receive from the franchisor as well as the strength of being part of a recognized, trusted brand.
Consider Franchising with Home Franchise Concepts
Whether you’re buying an established franchise or a new one, it’s important to go with a brand you trust. Home Franchise Concepts has been a leader in the home services industry for more than three decades. Our family of brands includes Budget Blinds, The Tailored Closet, Premier Garage, Concrete Craft, Kitchen Tune-Up, Bath Tune-Up, Two Maids, and Aussie Pet Mobile.
Find Out More About Joining the Home Franchise Concepts Family
To learn more about the benefits of franchising with us, submit this form to reach out to Home Franchise Concepts today. One of our franchise advisors will be in touch to answer your questions about buying an existing franchise so you can decide what’s right for you.