Here are 7 things to consider when buying an existing franchise location:
Beyond the purchase price, one should also consider the franchise fees. From the initial fee to become a franchisee to the ongoing royalties paid to the franchisor, these are all expenses that will greatly impact your business.
Ability to Expand
This is something many people overlook when first jumping into Franchise ownership. Are you limited to the current location(s) or is there potential for growth?
Tangible vs. Intangible Assets
It’s important to understand what you’re buying. Does a lot of the value stem from tangible assets like equipment, inventory, property, etc. or are you paying mostly for Good Will and speculative growth? Having a good grasp of what you’re paying for will go a long way.
This is perhaps the most important of all considerations. How much can you make? Some people use a multiple of gross income to determine the value of a business but these are all individual valuations. There is no magical equation that works for all businesses.
Trends & Competition
Is the franchise you’re considering in line with current trends or beginning to lose relevance? Senior Care in an aging population may make sense while brick and mortar retail in an ever increasingly e-commerce economy may pose more challenges.
Consider investing in an independent appraisal to determine Fair Market Value of Business being purchased. This will be a good tool for buyer and potential lender if buyer chooses to finance acquisition.
Review the Federal Disclosure Document of Franchise to determine their financial strength and the historical performance of franchisees in the Network.