| When buyers choose to purchase an existing | | | | new buyer to increase sales. Regretfully the seller did |
| franchise they can enjoy the benefits of regional or | | | | not get his marketing and sale strategy approved by |
| national recognition as well as a history of revenues | | | | the franchisor. Consequently the new business owner |
| and profits from the location. Buying an existing | | | | failed because the franchisor was not helpful on turning |
| franchise is somewhat different than buying any other | | | | around the business. By submitting a new marketing |
| type of business because you are essentially | | | | plan to the franchisor before you finish the acquisition |
| purchasing the business from the seller (franchisee) | | | | you will know whether or not the franchisor is |
| and the rights to the franchise from the franchisor | | | | supportive to you. |
| (company that owns the franchise.) Here are a few | | | | 4. Contact several other franchise owners with similar |
| suggestions on things you should do before and after | | | | demographics - This is so basic but very few |
| the closing: | | | | franchise buyers do this! You need to contact several |
| 1. Have a qualified franchise attorney review the | | | | franchisees and discuss your business plan with them |
| Franchise Disclosure Document (FDD) - This should be | | | | to increase or sustain sales. I recently heard of a |
| the very first piece of due diligence you seek. The | | | | franchisor that has started three (3) franchises that |
| franchise agreement signed by the previous owners | | | | have all gone bankrupt! |
| may not be the same agreement you will be subject | | | | 5. Avoid existing franchises with higher than a 5% |
| to perform by. Attorneys are best used as | | | | failure rate or a 10% transfer rate - In my opinion this is |
| "preventative medicine." They become very expensive | | | | a big reason to run, not walk away from a franchise! |
| and the legal process is very slow when you use an | | | | When you buy a franchise you are buying a proven |
| attorney to help you after the problems have arisen. | | | | business model. If the model isn't working - don't buy it. |
| You should seek out an attorney that has experience | | | | 6. Avoid buy new franchises - I recently had a |
| with franchise issues. Your acquisition may be subject | | | | franchise salesman contact me with a really neat |
| to transfer fees, back royalties, or the franchise may | | | | franchise idea or concept. I listened to the franchise |
| have first right or refusal to buy the business. | | | | pitch, he explained that there was an existing store |
| 2. Have a firm understanding of all franchise related | | | | that had been opened for almost two years and the |
| fees - Franchises have several fees that they charge. | | | | flagship store had been very successful. He explained |
| Franchises will frequently charge an upfront or initial | | | | that as the new franchise was being rolled out they |
| fee as well as a transfer fee. Other fees may include | | | | were offering a discounted franchise fee for the first |
| a flat rental fee and/or a royalty based on the gross | | | | few people who signed up for the business. I seriously |
| sales or gross profits. There are also a whole group of | | | | considered investing in this franchise, and such as all |
| other fees the franchise may charge and you need to | | | | business decisions I called my long term friend and |
| be aware of when and how the franchise fees are | | | | advisor. He pointed out to me that you buy a franchise |
| paid, what these fees go to, and what happens if you | | | | because it is a proven business model. If the franchise |
| are slow or don't pay a fee. | | | | hasn't been in existence for awhile, it's not a proven |
| 3. Compose a new marketing plan and submit it to | | | | business model. |
| corporate BEFORE closing - Several business buyers | | | | 7. Consult your franchise attorney (again!)- Franchise |
| are seeking existing franchises that they can fix up | | | | attorneys are great resources. They understand that |
| and turn around to make more successful. I recently | | | | with certain franchisors terms can be negotiated. |
| heard of one story where a seller told the buyer that | | | | However there are established franchisors that will not |
| all they needed to do was increase sales, and the | | | | budge on terms of the franchise agreement. |
| seller even defined a plan of attack on behalf of the | | | | |