10 Tips For Buying A Franchise Resale

Are you considering becoming a franchise owner? You might be thinking about starting a brand-new outlet, but there’s another option you should pay attention to buying an existing franchised business. It can offer you a ready-made income stream without the hassle of starting from scratch. But before you take the plunge, learn the essential tips to consider when buying a franchise resale.

Read the Franchise Agreement or Franchise Disclosure Document

You’ll need to read and understand the franchise agreement. Whether purchasing a new or existing franchise, you must sign a franchise agreement that binds you for the next decade or more. So take your time, carefully review it, and comprehend your rights, duties, and responsibilities as a franchise owner. You want to avoid surprises down the road.

Have a franchise attorney review the agreements.

Regarding legal matters, it’s best to seek expert advice. Engage a franchise lawyer to review all the franchise and purchase agreements before you sign anything. Franchise law has complexities, and you want to make sound legal decisions.

Make sure the franchisor approves the transfer.

Before you get excited about becoming a franchise owner, ensure the franchisor approves the transfer. They hold the power to give the green light to you as the buyer and the ownership transfer. If they disapprove, the whole deal could be off. You want to avoid ending up in a worse position than when you started. So get that approval before moving forward.

Have a valuation of the business performed.

Would you buy a house without knowing its value? Of course not! The same goes for buying a business franchise. Knowing the actual value of the franchise you’re eyeing is crucial. The asking price might not reflect its true worth. So get a professional business valuation, including goodwill, inventory, and equipment. This will allow you to negotiate and ensure you make an informed decision.

Determine why the existing owner is selling.

You wouldn’t want to invest in a sinking ship. To find out why the current owner is selling the franchise. If the business is on a downward spiral or facing unfavorable changes, it’s a red flag. Also, make sure the industry itself is in good shape and sustainable. Understanding the seller’s motives can save you from potential pitfalls.

Obtain and review financial statements.

Stay away from a financially sinking business, too. Request the seller’s last three years’ financial statements and examine them with your accountant. You want to see profitability and identify any trends. Also, cross-check with the franchisor to ensure the information matches up. It would be best to have a clear financial picture to make an intelligent investment.

Talk to other franchisees and the franchisor about the seller.

Get the inside scoop from other franchisees and franchisors about the seller and the business’s reputation. If the franchise has a tarnished name, it might be an uphill battle for you to fix it. So, research how the seller and the business are perceived within the franchise system.

Pay the transfer fee.

Every party wants its slice of the pie. In this case, the franchisor will require a transfer fee to cover their evaluation costs for you as the new owner. Ensure this fee is accounted for by either you or the seller to avoid any hiccups in the process.

Analyze the franchisor

Once you’re part of the franchise, the franchisor’s rules and responsibilities will affect your business. Investigate the franchisor thoroughly to see if they have robust systems and procedures to support the entire franchise system. You want to avoid ending up with a franchisor that can provide proper infrastructure and support for franchisees.

Will the staff stay?

A business without staff is like a car without wheels; it won’t go anywhere. Find out if the existing staff or management team plans to stick around after the ownership transfer. It’s essential to have a competent team to run the business smoothly. If the seller was a one-person show, consider having them stay as a consultant for a while to ensure a smooth transition.

Remember, buying a franchise resale can be a fantastic opportunity, but only if you approach it cautiously and are armed with knowledge. These ten tips will help you navigate the process smoothly and set yourself up for success as a franchise owner.