Franchises For Sale

Things To Know When Purchasing A Franchise For Sale

If you are a person with an entrepreneurial spirit, but you have never launched a business before, you might be contemplating the idea of opening a franchise business.

Franchises are great business models, because, in addition to the sense of independence that comes with opening and running your own company, the franchisor provides branding, marketing, training for owners and employees, and invaluable access to their support network to help with any challenges the franchise might face.

However, many emerging franchise owners are put off by the amount of funding it takes to launch a franchise from scratch – especially if the franchise requires a brick and mortar establishments with new construction, new equipment, and all of the other details which need to be purchased separately. As an alternative, many prospective franchise owners choose to look at franchises for sale and get in on an existing operation.

Where Can You Find A Franchise For Sale?

Finding a franchise for sale can be as simple as talking to a current franchise owner in your town. However, it is usually best to go through a broker or reach out directly to the franchisor to find an affordable franchise for sale in your area.

Why Choose An Existing Franchise For Sale Over A New One?

People like things that are shiny and new. However, when looking at franchises for sale, you have to get into the mindset of a business owner. Cars, televisions, and suits are things that should be new and shiny. When buying a business, you want the most cost-effective deal you can get. Even with the lower start up costs involved with getting an existing franchise for sale, there are still a large number of benefits that come with purchasing a franchise that is not “shiny and new.” Many times, those existing benefits make the transition to business ownership a lot easier.

Franchises For Sale Already Have Clientele

One of the main reasons to consider franchises for sale – apart from the reduction in cost – is that there is already an established client base. Buying a franchise for sale that has a decent financial history means that there is already revenue coming into the business, which can greatly offset the costs of the initial acquisition and the transition in ownership. Having an existing customer base also means that there is access to working capital available in case improvements to the establishment or upgrades to equipment need to occur.

Inroads With Vendors

Existing franchises for sale already have well-established relationships with vendors and suppliers. While some franchises use only specific vendors, or buy proprietary supplies directly from the franchisor, transitioning into an established business relationship by purchasing a franchise for sale gives you all of the existing benefits, including bulk discounts, or any business-to-business lines of credit that may have been established over the years. With almost every franchise, logistics are key, and having established relationships with vendors and suppliers will eliminate the time and money needed to establish those relationships.

Employees and Management

Acquiring franchises for sale means there is usually a management system in place, as well as employees who are already trained. This saves both time and money for you and the franchisor. One of the biggest hurdles in opening a new franchise is finding qualified employees and managers, but with that in place, the transition in ownership will go much more smoothly.

Buying A Franchise For Sale Is Great For First-Time Entrepreneurs

The franchise model is streamlined to accommodate those emerging entrepreneurs who have no prior experience with owning and running a business. Instead of dealing with construction, hiring new employees, finding equipment, establishing vendor relationships, and laying all of the groundwork ahead of opening day, buying a franchise for sale comes with all of those things already in place. If franchises are touted as being “turn key,” then purchasing an existing franchise for sale already has the engine running. Even the franchisor will assist both new owners and existing employees in making the transition in ownership easy, so there is very little (if any) disruption, in order to keep profits and sales high. Buying a franchise for sale is also great for those with prior business ownership, who want an operation that does not involve any of the headaches, long nights, and stress involved with launching a business from scratch. In short, there are a lot of benefits that come with buying a franchise for sale, which makes business ownership a lot easier for first-time entrepreneurs.

Before Buying Franchises For Sale

It is one thing to read all of the articles and statistics on franchises for sale, and it is quite another to see them in action. What emerging franchisees need to do is talk extensively with a franchise representative to learn how the corporations work, and then have a separate conversation with the owner of the franchise for sale to see how well expectation and reality line up.

The Conversation With The Franchisors

Franchisors like to interview potential franchisees to get a feel for their current finances, their ability to take initiative and manage an entire operation, while still adhering to the franchisor’s expectation. However, that interview is not just a one-way conversation. New franchisees should ask about financing, how much the recurring fees are to remain in “the system” with the franchisor, and if there is any financial assistance offered for buying an existing franchise.

The Conversation With The Existing Owner

The next step is to have a conversation with the owner who has a franchise for sale. Ask them how long they have been in business; how long it took from day one to start turning a profit; how much of the revenue actually ends up being profit; what the overhead is; and how communication works between the franchisee and the franchisor. If possible, ask if the franchise owner would be willing to let you shadow him to see what a typical day is like. It is a rare occurrence when franchise owners get to brag about their accomplishments as entrepreneurs or get an opportunity to speak candidly about running a franchise. This should give you a very clear idea if this is the right decision for you.

Using A Broker To Find A Franchise For Sale

Some people go through brokers to find a franchise for sale. Brokers usually have long lists of franchises for sale, where the existing owner is thinking of retiring, or they want to move onto other entrepreneurial ventures. Brokers work as liaisons between franchise buyers and sellers, and can sometimes arrange payment and financing options so the price does not have to be paid in full to assume ownership.

Franchise Acquisitions

The process of buying franchises for sale is not as simple as buying a house or a car. Every franchise operates differently. In some cases, the franchisee has an existing mortgage on the property, and that title needs to be transferred to the new owner. In other cases, while the franchisee may own the business, the franchisor may own the land. It is always wise to ask both the franchisee and the franchisor who owns the property, and what needs to be done to transfer ownership of the business to you.

A Word About The Franchise Disclosure Document

When buying a franchise for sale, owners will have to commit to a franchise agreement. Whether new or used, franchise owners will be supplied with a Franchise Disclosure Document or FDD. The FDD is a comprehensive layout of how the franchise is run, the names and biographies of the people in the corporate hierarchy, any business holdings, fees, and other requirements of the franchise owner. The Franchise Disclosure document is required to be issued to prospective owners as part of the Federal Trade Commission’s guidelines and regulations for business transparency. The FDD prevents entrepreneurs from getting surprised by fees or requirements when buying a franchise for sale. It is advised that prospective franchise owners go over the Franchise Disclosure Document with a lawyer who specializes in business and franchise transactions.

The Biggest Benefits Of Buying Existing Franchises For Sale

As discussed above, most franchises for sale already have a customer base, and some (depending on the type of franchise) may have existing contracts with other customers. An existing franchise is already staffed, has relationships with vendors and suppliers, and there is already a system of operations in place to keep things running smoothly. Additionally, the business may already have a strong credit rating (which should be researched before deciding to buy), and this can be leveraged to secure additional financing, further on down the road. In essence, purchasing a franchise for sale is perhaps more “turn key” than going through the screening process and financial steps to build a new franchise from scratch.

The Best Types Of Franchises For Sale

When looking at franchises for sale, there are a number of strategies used for finding the “best.” Some people want to go with an easily recognizable brand, but that can run into problems if the area in which the franchise is located is saturated – either by that brand in particular, or the products they are offering. Others go for niche markets, thinking that uniqueness will grab them a larger market share and keep the likelihood of competition and saturation low. Some like to purchase seasonal franchises to generate extra revenue during holiday or vacation seasons because the customer traffic is high and the sales volume spikes during these special times of the year. There is also a segment of franchise owners who want to focus on things people need, rather than luxuries and entertainment. The idea behind this is that if there is a dip in the economy, they will still be able to generate revenue while customers try to save money elsewhere by not purchasing frivolous things. The best advice is to get a franchise with an attractive brand and products or services that are widely sought after, at affordable prices, that can also weather a recession without taking too much of a hit, financially speaking.