Franchise
Before Buying a Franchise – Read This!
Franchises are everywhere today. But are they the ‘way to go? If it’s a Mac Donald’s franchise I’d say “yes” but for probably 80% of the rest, you need to be very careful. My advice is to check out each one on its own merits and ask the following questions: -.Firstly, is this franchise someone’s ‘bright idea’ to sell a franchise network? Is there an existing demand for the company’s products or service? How much competition is there for these products and services? Is the demand likely to grow? This is a point that is often overlooked by budding franchisees. There must be a solid and growing demand for the products or service.
Secondly, what is the franchisor offering by way of ‘support’? Most franchisors oversell this point. When it comes to the crunch (usually after you have paid your franchise ‘buy in’ fee), you find out that what you are ‘buying’ is simply a so-called ‘opportunity’ to own a business in exchange for carrying 90 % of the risk. This risk involves the capital cost of ‘buying a territory’ plus your on-going franchise fees which need to be paid on top of the normal capital required to start a new business.
Thirdly, what are you getting for your franchise fee? The franchise fee is normally 6% of your turnover, of which 4% typically goes to the franchisor and 2% goes towards group marketing of the brand. So what does this mean in practice? If you are operating on say a 25% Gross Profit, then a 6% franchise fee on your turnover represents almost 25% of your gross profit! For example for each 0,000 of turnover, if ,000 is your Gross Profit, then you will pay ,000 in franchise fees, which leaves ,000 to pay all the other bills, leave something for your wages of management and pay a return on the capital outlay that we have mentioned.
I would suggest that this is not a ‘level playing field’, in fact it is heavily tilted in the franchisor’s favour! This is the one big killer of most franchises and for this reason I would generally not touch one (I did once against my better judgement and lived to regret it!)
The exception would be a franchise that was a well-known and proven brand, offers ‘turn-key’ operating systems (Mac Donald’s is the perfect model here), and has a network of happy franchisees, most of whom are making money. If it doesn’t meet these criteria then walk away!
In fact, this is the ideal way to check out a franchise. Before you buy, ask for a list of all of the franchisees (not just selected ones given to you by the franchisor!) and get permission to go and talk to them. Use the above criteria as a ‘measuring stick.’ If the franchisor is not willing to cooperate in this, then walk away (if you have not already done so!)
If you are looking to start a new business, another option is to work from home with the benefits of very low capital outlay and overheads, no staff, no traffic hassles etc. By learning how to use the internet to access 1.5 Billion current internet users, you can make money on-line from the comfort of your home. That has to be a preferable business model.
How One Can Sell A Franchise Business
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Selling a franchise business is not as straight forward as selling your own business. Your franchise agreement will have detailed instructions on the procedures that you need to follow when you take the opportunity to sell your business.
The franchisor will be able to assist you in valuing your business and will probably insist that you use the methods of valuation as set out in the franchise agreement. You will of course be free to seek independent advice and valuations.
Be careful when seeking the advice of experts and always agree the price beforehand so that you are prepared for the final costs and have a chance to negotiate any prices quoted before giving them the work.
It is always worth seeking a second opinion as valuations can vary wildly. This is due to the many variables the valuation experts take into account including future growth potential of your business and values for any properties whether leased or purchased.
The franchisee will have to seek the permission from the franchisor to sell the business. This permission can not be unreasonably withheld or delayed provided that the franchisee has adhered to the terms of his agreement and has found a suitable buyer.
In some cases the franchisee will have to pay a small percentage of the sale price to the franchisor. This can range from five percent to twenty five percent of the final price. The franchisee will also have to pay the franchisor a small sum to do the normal checks on the future buyer.
The franchisor usually has a right to buy your franchise business at the same price as the highest offer received and considered acceptable. This is a normal part of any franchise agreement and is there to protect the franchisors rights. If they believe that you are selling the business at under value, then they could take the opportunity to step in and buy the business for the same price.
The franchisor might also want to take his business back into private control and this is an optimum time to buy the rights back. If this is the case then the franchisor might actually step in and bid higher than the current highest offer.
In most cases the new buyer will not be able to take over your franchise agreement. A new agreement will have to be created for the new buyer and your agreement will lapse. You will have to ensure that all monies due as per the franchise agreement will have to be settled prior to the transaction taking place.
Most franchisors will be able to assist you in the sale of your business if required. This service usually demands a premium and or a higher percentage of the purchase price.
Finally bear in mind that there is always a difference between the valuation and the final price achieved. In some case this difference can be huge. In the end the market place will decide what your business is worth and not the valuation report. At any point in time some business are more in demand then others and can command prices well in excess of their valuation price. Taking all this into account it is better to sell the business when the economy is doing well or at the right side of the economic cycle. By getting the timing right, this can make a huge difference to the sales price achieved.
When Is the Right Time To Sell A Franchise Business?
As a professional business broker and franchise consultant I am often asked by small business owners about when is the right (or best) time to sell an existing franchise business. Like most things in life, timing can mean everything when selling a business. This includes choosing the right time to sell a business or franchise that will help you maximize your return on your investment and years of hard work. Here are a few helpful tips you might want consider if you are debating if its time to sell and cash out now.
Sell When Things Are Going Right:
Its sounds simple and logical right? Unfortunately it takes a lot of discipline and will power to pick the right time to make the decision to sell, especially when profits are up and the business is growing and running smoothly. Logically its makes good business sense to put a business on the market when sales are still heading North because who knows what unforeseen circumstances may lie ahead that could adversely affect your business. This includes personal issues like illness and divorce as well as broader economic factors like increased competition in your market niche or a major economic downturn like we are experiencing now. The bottom line is you are more than likely going to get the best possible price and terms for your franchise business when you can demonstrate to a potential buyer that business has never been better.
It’s Just Not Fun Anymore:
I am a firm believer that individuals should start businesses and franchises that they truly believe they will enjoy getting up in the morning to work every day of the year. Ok, most days of the year. Because let’s face it, starting any small business today is going to be challenging so hopefully you did start a business model or franchise concept you enjoy working with. With that in mind, if you are at the point where you find you just can’t seem to muster the same enthusiasm or passion for running your business maybe its time to consider moving on to the next venture. There is no reason to feel like a failure or guilty if you come to this realization. It’s quite natural for many entrepreneurs to get bored and restless after several years of running the same business. The important point to keep in mind is not to let your lack of enthusiasm for the business drag on to the point where it starts to have a negative effect on the business- including growth and sales.
Owner Burnout Syndrome:
As a professional business broker I can’t tell you how many calls I get on Monday mornings or Friday afternoon from business owners who want to sell because they are completely “burnt out” and just don’t want to do it anymore. That’s fine and completely understandable as running a small business can sometimes be all consuming endeavor that can wear and break even the most rugged and seasoned entrepreneur down. The point I try to impress on my clients is to be conscious of the onset and potential negative effects of the “burn out” syndrome and not to wait to the point where it overwhelms you and mitigates your chances of getting the best possible price for your business.
Summary:
Please keep in mind that all prospective business buyers should thoroughly investigate any franchise opportunity or business, obtain all appropriate disclosure documents available, and seek expert consultation prior to making any investment decisions.
Planning Your Own Income When Looking For A Franchise For Sale
When starting a new franchise the first thing you must do in terms of money is too put together a list of all your costs. These will include everything from the initial investment to paying the accountant, the most significant cost and the one we will now go over will probably be your personal expenses or wages.
These personal expenses can be drawn from the new franchise in a number of ways. The funds can be put into your new franchise and pay yourself a salary so that the initial investment includes your salary. Another option is to leave your funds in a personal savings account and take what you need from it while the franchise opportunities grow until you can start taking a wage out of the new franchise. These options are up to the individual and it is best to consult an accountant when looking for a franchise for sale to go over the best tax options for you.
If you are looking for funding for the new franchise, perhaps a bank loan, then this type of funding could be the most difficult step in gaining a loan. You may have a business plan detailing the money you need for transport or equipment but to ask for a loan to cover your personal expenses is a different ball game. The lender will want security that the franchise opportunities of the business are concrete and you are looking for a franchise for sale that will make a profit sooner rather than later. A lot of new franchise ideas are started up with life savings and they generally cover the first few months, or until the new franchise is making a profit.
The funding figure can vary hugely, it all depends on the persons circumstances, if the person is quitting their primary job to start up a new franchise then the figure will be high. If the individual is setting up a home based franchise as a second income then the figure will be quite low. You must be aware of this when you are looking for a franchise for sale and the amount of time it will take for the new franchise to replace your primary income as this will be the major cost of the franchise.
Finding the time period it will take to achieve your primary income is a challenging one. There are several things to look at, the growth of your new franchise, the competition in the market and area, your income forecast and the pricing structure of your product or service. A lot of franchisors do not give details of potential earnings of the new franchise and are somewhat reluctant to do so, as the earnings change from location and individuals. The actual earnings capacity of the franchise is a mystery to the franchisor when it first starts out and therefore you must make an educated guess.
The only way to get an accurate reading of what this figure could be is to talk to other franchisees around your area, as they are likely to give you an accurate figure and be more helpful. Most franchisees are fairly open about their business dealings and income, so ask these franchisees as much as possible to get a figure and time scale in your mind. Once you have these figures start putting the franchise ideas into practice and build your new franchise.
How to Sell Your Franchise
If you’re like most franchisees owners there will be a time when you decide to sell your franchise.
This decision will be based upon one or more of the following reasons:
You suffer “burnout.” The average life span of a small business is four years.
Operating the franchise is no longer enjoyable.
The value of the business is at a high level.
Competitive factors threaten your sales.
There are extenuating circumstances, such as a personal or family illness.
Unlike independent business owners, franchisees have restrictions regarding the sale of their franchise. Because the franchise can only be sold as a franchise can limit potential buyers. This makes it important that your franchise is attractive to qualified buyers.
The Majority of Franchisor’s Don’t Assist in the Franchisee Sales Process
Since franchisors retain strong contractual rights regarding the sale and assignment of a franchise, most franchisors take an “arms length” approach, when it comes to franchise resales. This lowers the risk that the franchisor will face claims of interfering with, or inhibiting the right of a franchisee to sell their business. Without an organized franchise resale program most franchisees must shoulder the responsibility to find a qualified buyer and complete the transaction. When you’re ready to sell be sure to notify your franchisor since they will be involved in various stages of the sales process. They may also have a franchise prospect in their database that expressed an interest in your territory.
Finding Buyers for your Franchise
If you decide to engage the services of a business broker expect to pay a commission of 8 to 12% of the sales prices. Most reputable business brokers will also have a minimum transaction fee of a least ,000. Some franchisors will provide the name of business broker(s) to their franchisees. However, as a franchisee looking to sell, it will be your responsibility to find and contract with a business broker.
If you decide to find buyers, begin by listing your franchise on several Internet sites. A number of highly visited sites are bizbuysell.com, bizquest.com, businessnation.com. These sites are inexpensive and attract a great deal of traffic.
Use These Items as a Checklist before Listing your Franchise
Confirm if there will be a change in the royalty, advertising fees or other important items once the sale is completed. Since franchisors usually require a buyer to execute the current form of franchise agreement, there may be new terms that can negatively impact the future profitability and sales price of the franchise.
Advise and utilize the services of your accountant and attorney. You’ll need their expertise in valuing the business and dealing with any potential legal issues.
If location is a key component of your franchise the terms of your lease can be a positive or negative factor depending upon the length and rent. Obviously a long term lease in a good location at a reasonable rent is a plus, while the converse can be a negative. Identify options with your landlord.
Changes in the competitive nature of the franchise can have an impact. Be prepared to answer questions regarding competition.
Will the franchisor require the new franchisee to remodel the premises? Some franchise concepts, especially in the food segment will require the buyer to bring the premises up to current standards. Once again identify the possible requirements placed upon a new franchisee.
Be in “good-standing” with your franchisor. A franchisee in default of their franchise agreement that attempts to sell their franchise without an understanding from the franchisor could get into a “sticky” situation. If necessary, obtain advice and assistance from your franchise attorney.
Have good financial records that are current and accurate. The majority of small business sales fail because the financial statements fail to confirm owner income, operating expenses and future earnings potential.
Be realistic and honest regarding the value of your franchise business. Most franchise owners tend to err on the side of setting a higher sales price than their financials support. Also, don’t rule out financing part of the sale price. If you do provide financing be sure your attorney includes protection in your sales agreement.
Selling your franchise is an important decision and requires careful preparation before listing for sale. Make sure you obtain the advice of professionals before and during this important activity.
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Reselling Your Franchise
If you are thinking about re-selling your franchise to a new franchisee, for whatever reason, how is that done? You might be wondering how it differs from selling an independent business, because you don’t technically own the franchise, you only own its assets. You are renting everything else, from the brand name to the business model of the franchisor.
When a franchisee wants to re-sell his or her franchise, he or she probably wants to get all of the money they have invested in the business, and more, if possible. You may be wondering what the price is based on. It is a multiple of the cash flow of your existing business. If your franchise is profitable and has a track record, there is a good chance you will be able to make money by selling it, based on the money you have invested in it.
In addition, the fact that you are selling a franchise rather than an independent business makes it more likely that you will make a profit on the sale, because the buyer is getting other benefits besides the profitability of the business itself, including the brand name which draws in customers and the opportunity to use the services of the franchisor, though, of course, they will have to pay royalties for those things just as you did when you owned the franchise. The buyer will be drawn to your franchise because you have done all of the hard work getting it started and they can reap the benefits of working with the franchisor’s business model.
If your franchise is not yet profitable, you may have a harder time selling it to a buyer, even if they are drawn to the franchise model. Some buyers may not particularly care that the business you are selling is a franchise, and will just see an unprofitable business and move on. Other buyers may still be interested, but you will probably have to lower your asking price if you are determined to sell your franchise. If you are asking more money than a new franchise costs, the buyer may not be interested in buying your unprofitable franchise. They will have to consider whether or not certain aspects of your franchise are more appealing to them than buying a new franchise. For example, you may be able to sell your franchise at a higher price than a new franchise if your territory is particularly desirable, if you’ve done a lot of work to get things going and have just not quite broken even yet, or if you’ve done marketing to help get customers interested in your territory already. These things will add value to your franchise in the mind of the buyer, even if it is not yet profitable, and you may be able to sell it for more than you bought it for. However, if you are very determined to sell your franchise quickly, you will probably need to lower your price even more than the cost of a new franchise.
Costs Associated With A Franchise For Sale Offer
If you are looking for a franchise for sale and come across franchise opportunities that have a very low fee for start up then be cautious. When you buy a franchise it is not just a matter of paying a one-off fee for the start up cost. There are ongoing costs that are involved in the operation of any franchise for sale. The most common cause of a franchise to fail is the lack of funds to cover these costs.
The franchises UK costs are mostly determined by the industry or sector that you are going into. The range of franchise opportunities vary hugely for start up costs, a major restaurant chain may need a start up fee of 200,000 pounds whereas a small home based franchise may only cost 5000 pounds. There is a range of costs within the same industry as well, you could pay a lot more for a prime location or the franchise might have grown significantly and therefore the franchise fee has grown. The greater the cost may be down to the franchisor offering a number of services and additional support so if you pay a lower fee then this level may not be the most beneficial.
We will look over a few of the costs associated with a franchise for sale, these include one-off costs and ongoing costs.
The franchise fee, this is the first payment you will make when buying the franchise, it will be set by the franchisor and will be paid on the signing of the franchise agreement. This fee allows you to use the franchises name and branding, in a lot of cases it also gains you access to the support and training of the franchisor along with their marketing and promotions.Initial money investment, this will be money that you will put in additionally to the start up fee. In a certain number of franchises UK the franchisor will expect you to have about 30% of the start up fee as back up to qualify to buy a franchise.Working capital, this is the money to support yourself and the franchise through the initial months of start up, not all franchises start earning money immediately and you need money to survive on until it does. Getting through the early months is essential to your business and there must be this capital or the franchise will fail.Professional fees, I cannot emphasise how important it is to hire a franchise solicitor and accountant. These may be expensive to start off with but they will keep you within the boundaries of the taxman and make sure that you get the best franchise for sale.Royalty fees, this will be an ongoing cost between you and the franchisor. This percentage, usually around the 5-10% mark, will be detailed in the franchise agreement and you and your solicitor should have negotiated this cost in the purchasing of the franchise.
There are other costs but it depends on the franchise for sale that you buy, if you have premises then the premises costs like rent, utilities and insurance will be major costs. If you intend to employ staff then the payroll, taxes and training will be costs to you. Make sure you have the right backing and cashflow to take on a franchise as costs can vary hugely, make sure you are aware of all costs before signing that franchise agreement and taking that big step of buying a franchise.
Looking For A Franchise For Sale? We Look At The Advantages Of Running A B2B Franchise option
We are taking a look at franchises that offer a business to business service and how they differ from franchises or businesses that cater for consumers. B2B franchises are tailored for businesses in a certain area and are therefore specialized to certain businesses. The choices of the franchise for sale options within a b2b franchise is varied and can range from high-end services such as IT networking to lower-end services like cleaning. The main point is to establish the fact that a b2b serves the other business in the area by providing them with a specialized service that can be outsourced to provide cheap and effective solutions to their business. This will generate a lower cost for them and less problems in dealing with maintenance, equipment and people.
A b2b business is different fro a regular business as they have set hours of which the other business will work. This means that the franchises have a shorter day than a regular business as they only need to operate when they are needed. These franchises are also cheaper to run and set up as the bills for equipment, wages and utilities are generally small as opposed to a large office. B2B franchises should be able to run from just a small number of core staff so the amount of office space and equipment can be kept to a minimum. This means that the bills are much lower each month and there is less risk involved when choosing a franchise for sale. The start up costs are also very small and this tied up with the low running costs make it an attractive option for many people looking for a franchise for sale or even a home based franchise.
Some of the b2b franchises can be run from the comfort of your own home and are what is known as a home based franchise. Good examples of these are normally an internet based business of a mail order franchise. Both of these opportunities have seen a rapid growth over recent years and more and more people have taken then option of working from home as opposed to the daily grind of an office environment. The results of working from home and of a home based franchise have greatly increased because of the low running costs, the outgoings will be very small from a small home office and that coupled with the specialized service can be the recipe for a great profitable business.
If you have seen b2b franchise advertised on the internet or in magazines then take a close look at the best options for you. There are a huge amount of franchise for sale options available but remember the best franchises are the ones that you are interested in, the franchise must fit into your lifestyle and knowledge base. It is easier to take a franchise opportunity to market that you have good knowledge of and have experience in doing, this will give you a massive push forward to help grow your business. In b2b franchises the success of the businesses you are helping will correspond to your business success. So if you are interested in b2b franchise then search the franchise for sale options that fit your skill set and fit your personality.
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Do You Have What it Takes to Be Successful as a Franchise Owner?
Article by Chris Hendley
When selling a franchise the franchisor should provide the franchise candidate with the information necessary for making an informed decision. On the other hand, the franchise candidate should know what information they require before making their decision. This article provides advice for both parties.
When selling franchises, franchisors should provide prospective franchisees information that pertains to all aspects of the franchise operation. In addition, franchisor staff will be asked particular questions by the candidate.
However, there is some information a franchisor may not provide and questions that a franchise candidate may not ask. Whether or not this lack of information can negatively impact the future success of a specific franchise is unknown. My position is that the franchisor has an obligation to provide a prospective franchisee as much information about the franchise opportunity as possible, while complying with franchise disclosure regulations. The information provided by a franchisor will help in the franchise sales process, while educating the prospect regarding the franchise. The end result should be an informed and intelligent decision by both parties pertaining to the possible purchase of a franchise.
An important consideration regarding the decision to purchase a franchise is based upon the ability of the new franchisee to effectively develop sales in his or her market. Any additional information pertaining to the market will be of benefit to both franchisor and franchise candidate.
The additional information should include the following:
The composition of the market including demographics, where the franchise will be located. This information includes actual and potential revenues, number of firms and any large or dominant players in the territory. The nature of the competition and how the franchise can effectively meet the competition. Are there certain critical success factors that relate to the successful firms in the same industry segment? Try to use examples of firms that are leaders and what sets them apart from the others. Credible and recent financial data and statistics pertaining to the industry. U.S. Commerce Department reports are an example. Key attributes of the franchise such as location and marketing techniques needed to succeed.
This is information that a franchisor should provide to a prospective franchisee. In some cases the franchisor may advise the candidate to gather some of the information on their own. In any case, franchisors should include this component as part of their franchise sales process. By following this approach franchisors will be providing prospective franchisees the information that will enable them to make a better decision regarding the franchise. The result can benefit both parties. More Info Go to: http://www.bizzibizfranchises.info
About the Author
Chris Hendley ‘Internet Marketer/Trainer For the People’
Franchise For Sale – An Opportunity Or An Embarrassment?
Franchise business is a hotbed of opportunities. While, this fact remains, a businessman who is dynamic, proactive and looking for some adventure in profession and is capable of taking risks may find himself stranded by a franchise that he is running for some time. A franchise, any one for that matter, works on a set successful model of business and is a repetitive in nature. While most franchising companies think that they follow the best practices, it can get to a dynamic entrepreneur’s nerves, more often than not. Whilst may be an option, putting up the franchise for sale is a better option so that one can make more money from it.
Franchises for sale are available everyday. While most of them seem to be restaurant franchises, many other businesses are also seeing the same trend. The reasons may be various, but, the most common reason is that a budding business man has already got bored of it. A businessman when he starts off, tends to take lesser risks, hence goes the franchise way. After a few years, when he learns the ropes of the business and gets more experience in handling the business, the businessman tends to think that he has more to do than running the robotic franchise. Any dynamic businessman would think the same way, and so puts up the franchise for sale.
In case you have decided to put up your franchise for sale, the first thing that you need to do is to contact the franchisor. There is nothing to be embarrassed about, ultimately all of us need to move on in life and so does the franchisor. The franchisor as already taken into account that some of their franchisees will sell off their franchisees at some point of time. Their business plan takes this into account. The reason may be anything and the franchisor may have heard it before, go ahead and do what you need to do.
The franchisor may put up some impositions or conditions on your franchise for sale. Most of these however will be inline with the current guidelines they have for giving out a new franchise. The franchisor would be looking to the ability of approving the new franchise and nothing else.
The next most important thing would be assess the cost of your franchise. Talking to your attorney with updated accounts in the proper structure of sale may be of great help. Taking into account the property lease, stocks and various other parameters, it is important to value your franchise at the correct price.
Answers to all these questions lie in your organization. All you need to do is find them and make the right decision in regard to price and continuity. Talking to a business broker would be a good idea to begin the process. Newspaper advertising, website listing in the relevant category can help accelerate the process of find the right customer for your franchise for sale. Always be sure to have an extensive qualifying procedure in place before selling your franchise to an unknown individual.
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