Most people considering setting up in business will have heard of the well-publicised statistics about the success of franchised businesses versus stand alone independents, reports Derrick Simpson (right), of Franchise Resales Limited.
With franchising there is a general reduction in risk due to the proven operating systems, the specific training and on-going support.
It is of course still up to you to assess whether the information and projections your prospective franchisor is providing are correct and they can be achieved by you running the particular business in question.
You need to be sure you can implement the marketing programme, deliver the sales and profits presented to you to make your business a success mirroring that of other franchisees in the system.
Further risk reduction
How then can you trim the risk element even further? How can you be sure that a particular business will operate in-line with the projections? How can you check the business will operate within a particular marketplace?
The answer to these questions is to purchase an existing business rather than starting from scratch – buying a resale business. With an existing business there is;
- A ready made customer base
- Cashflow from day one
- Trained staff already in place
- Brand presence in the local market place
- An established supplier network.
- Evidence of what can and has been done
The franchisor is there to provide training and support, assist with your launch and provide hands-on advice, just as it is with a new franchise. The business however is also already there and waiting for you to inject your energy and drive to take it on to unleash its potential.
“Hang on” I hear you say; why, if it’s so good, is the business being sold. Surely it must be failing or have something wrong with it, otherwise they would want to remain there and grow it further?
This of course is not the case.
A resale is not a sign of failure; generally people selling existing franchises are looking to move on for positive reasons. That said, a business that is in the right location for you, in the sector you are looking at but is not successful, for whatever reason, can present an opportunity for the right purchaser.
Any franchisee who wishes to sell their business will need to prepare a document describing that business, the trading history, the main costs involved, the accounts for the business so you can see accurately how it has performed and of course the asking price. This document is called either a “Prospectus of Sale” or “Information Memorandum” and it designed to give you all the basic details of the business.
Establishing the asking price is important because this can either entice you further or scare you away if it is either lower or higher than you can afford or may have expected. One tip here is to always check to see how the asking price was arrived at. Was it with a finger in the air, is it what the seller needs or wants or was it structured by a qualified valuer who can substantiate the calculation with fact and experience.
Where you really do get the best out of a resale opportunity is when the seller has been advised by either the franchisor or a specialist resales consultant company, to follow a structured process and work logically to provide the necessary detail in preparation for their sale. This will enable you to see where there is growth potential, to establish what you need to invest to launch you ownership of the business and to enable you to prepare a structured business proposal for which ever bank you approach for funding or banking facilities.
During your meetings with the franchisor they will clearly have a view about the resale businesses they have available and whilst they will most likely have engaged an external specialist, such as Franchise Resales Limited, to co-ordinate and manage their resales for them, they should still be able to advise you on the best way for you to grow and develop the opportunity at which you are looking.
This goes back to the basic concept of franchising that an experienced franchisor when combined with an enthusiastic qualified franchisee has all the ingredients to be highly successful and when this is combined with a well organised and structured sale of an existing business it truly can be a win, win, win situation.