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Verifiable
Track Record:
When you buy an
existing franchise business you have the advantage of being able
to review and validate detailed past financial records that can
help demonstrate whether the target business is ultimately a good
investment or not. With a new franchise opportunity in most cases
you are relying solely on potential sales projections provided by
the franchise company based on demographics and how other
established units are performing. In short, having the ability to
see actual yearly sales volume, net income, and operating costs
can greatly increase your chances of making a good investment
decision.
Smaller
Investment:
In
some cases it’s not unusual to be able to purchase an existing
franchise business for much less than the initial costs of a
start-up opportunity. This scenario is even more attractive when
you consider that the business may already be well established and
profitable. And as a re-sale you may only be subject to a modest
transfer fee versus paying a full franchise fee that new
franchisees typically pay. You can view listings and compare
general sales information about existing franchise businesses on
directories such as AZFranchises.com and www.bizbuysell.com.
Established
Customer Base:
When
you buy an existing franchise business you also have the benefit
of a built in customer base that has hopefully created a large
reservoir of good will that will remain in place after the
transfer to new ownership. It’s comforting to know that the
previous owner has already invested a lot of time and money to
create a loyal clientele and subsequent revenue stream. This
should theoretically allow you more time to concentrate on other
aspects of the business.
Net Income or
Cash Flow:
In
general, the majority of new franchise businesses don’t start
making a profit until their second year of operation. This can be
challenging of course for the owner operator who may not have
adequate working capital to meet his business and personal
expenses in the interim. In most cases (if you have made a prudent
purchase) with an existing and established franchise you can rely
on a fairly predictable cash flow that should cover your expenses
(including debt service) and allow you to make a profit.
Easier To
Finance:
Whether you are
seeking bank financing or the owner is offering seller financing
as part of the acquisition terms, you should in most case have a
much easier time securing acceptable financing to buy an existing
franchise. Lenders and Banks make no secret they prefer working
with established businesses that can provide a detailed financial
history of performance versus working with a start-up. With
seller financing you can negotiate and secure acceptable terms
directly with the owner and avoid the headaches and restrictions
associated with securing bank financing for an acquisition.
Less Risk:
Although buying a
new franchise business is considered statistically much less risky
than starting a non-franchised business from scratch, buying an
existing franchise with an established track record is generally
even less risky. Even new franchise locations occasionally fail
for a myriad of reasons including under capitalization, fierce
competition, or a poor location. Existing franchises on the
other had that have been established 5 years or more and have
overcome the obstacles that all new small businesses face
generally have a very low rate of failure.
Summary:
Please keep in mind that all prospective business buyers should
thoroughly investigate any franchise or business, obtain all
appropriate disclosure documents available, and seek expert
consultation prior to making any investment decisions. |
