How to Buy a Business: Best Practices for Buying a New Franchise Opportunity

How to Buy a Franchise

Best practice guide

How to buy a franchise business: Are you interested in buying into a franchise? With the system and procedures, it seems challenging. Business owners prefer franchising because you are inheriting an established brand. Moreover, a franchise has a proven business model. Like any business, it is important to select a franchise that you are passionate about.

Franchise opportunities under consideration should mesh with your past business experience and acquired skills. It is not cheap to buy a franchise and significant capital is required. This leaves prospective franchise owners searching for financing options. Buying a franchise is not particularly easy and sometimes professional assistance is required. Business owners are able to quickly leverage off the franchise's brand and product line.

Here is how to buy a franchise:

Franchising remains a great business opportunity in 2019. In fact, there are nearly 760,000 franchise establishments in the United States.

Business owners prefer franchising because you are inheriting an established brand. Moreover, a franchise has a proven business model. You can review actual sales and profit data to verify that the concept is growing rapidly.

Read on to learn how to buy a business. Explore this comprehensive guide on buying franchises including topics such as financing, research, and getting a good deal.

Find a Franchise Opportunity You Are Passionate About

The first step in buying a franchise is identifying the right opportunity. Like any business, it is important to select a franchise that you are passionate about.

Start off by considering industries that you are familiar with and understand how they operate. Also, franchise opportunities under consideration should mesh with your past business experience and acquired skills.

Franchise Analysis

Before you invest in a franchise, substantial analysis is required. Of course, you want to look at sales data and what profit margin is realized. There are many other business indicators to evaluate.

What are the startup costs and franchise fee? What type of operating expenses does the franchise have? Are there any additional fees such as royalties or advertising costs?

This all falls into the category of performing a comprehensive cost-benefit analysis. There are other factors to consider in a franchise analysis.

Perhaps one of the most important factors is the location of your prospective franchise. This is so critical because not all locations are considered equal.

Each geographic location comes with its own set of state and local taxes. There are also state wage laws to consider, as well as rent and population density.

Financing Options

It is not cheap to buy a franchise and significant capital is required. On average, initial franchise fees range from $20,000 to $35,000. Depending on the brand, it could cost upwards of $100,000.

Not many entrepreneurs have that type of cash lying around. This leaves prospective franchise owners searching for financing options.

Some opt to apply for a bank or Small Business Administration (SBA) loan. Others use their retirement savings using a mechanism called a rollover for business startups (ROBS).

ROBS allows you to withdraw retirement savings from your 401k, IRA, etc. without penalties or taxes. Lastly, some franchisor offer financing options.

Professional Assistance

At this point, you may be feeling overwhelmed. Buying a franchise is not particularly easy and sometimes professional assistance is required.

There are subject matter experts available for franchising placement and finding the right opportunities. They perform in-depth analysis such as reviewing the franchise’s financial health. Among many other services, they also evaluate the Financial Disclosure Document (FDD) and Franchise Agreement.

A Recap of How to Buy a Business

There are many reasons why entrepreneurs choose to buy a franchise. Business owners are able to quickly leverage off the franchise’s brand and product line.

However, the franchise acquisition process is littered with landmines and complexities. A professional service company can ensure that you make a sound investment. If you want to learn more about how to buy a business, log in today.

An In-depth Step-by-Step Guide to Buying a Franchise

Approximately 1 out of 12 businesses in the USA is a franchise business. Opportunities like franchising and entrepreneurship through acquisition are some of the great ideas for business minded people looking to run a business without the struggle of creating a new business from scratch. However, establishing a successful franchise takes more than merely finding an ideal franchisor and financing your business. It is a complex step that requires careful planning and strategizing. You need to conduct comprehensive research, review the necessary documents, and follow the steps below.

Conduct Rigorous Research

Finding out the necessary information is the first step you should take when you need to buy a franchise. Thorough research will ensure that your venture into a field of your interest, within your budget and your qualifications. You need to ensure that you meet the basic requirements necessary to start a franchise and also assess your resources, skills, and interests. Your research needs to involve:

Talking To Franchisees

Take time to talk to current franchisees. Gaining an insight into their experience with franchising will help you avoid mistakes in yours, and examine what they did right and maybe use it for your business. Through franchisees, you will also identify the pros, cons, challenges, and hidden costs of running a franchise.

The Type of Franchise

Choosing the right franchise is an important step. To arrive at the right decision, you will need to examine your skills, the type of environment you want to work in, your interests, and your goals. Depending on your needs and budget, you can find companies willing to sell a start-up or already established business. You should also determine the amount of money you are ready to invest and the profits you would like to make from the franchise. This information will help you choose the right franchise.

The Qualifications Requirements

Franchisors set minimum requirements for their franchisees to protect their bottom line and ensure that the franchisees are qualified both financially and professionally. Qualifications vary depending on the type of franchise and the franchisors, but the standard requirements include a credit score, management experience, industry experience, net worth, outside income, and cash in hand.

Fill Your Initial Application Forms and FDDs

Once you have done your research and identified the franchise, the next step is to choose 1 to 3 companies to consider. These companies will give you a representative who will provide you with information about their company. You will also fill the first application forms and preliminary questionnaires. If the franchise is satisfied with your answers, you will receive a copy of the franchise disclosure document (FDD).

The FDD is a 50+ page document that indicates the fees you need to pay, your responsibilities as a franchise, information about the franchisor, and your responsibilities as a franchisee. Make sure you study this document to ensure that it is a good fit. The federal trade commission mandates franchisors to provide franchisees with the FDD at least 14 days before making any binding agreements.

Review The Agreement

If the franchisor decides that you are the right candidate to acquire their business, they will draft and offer a formal contract. Reviewing the agreement ensures that you understand everything before you sign it, so take time to read through the document and hire a franchise lawyer to help you better understand the terms of the contract. The contract gives you the legal right to own a franchise under its rules and regulations. The contract should indicate the rules on the transfer of ownership, royalty fees, hiring staff, protection of territory, pricing, suppliers, among others. Any promises made verbally also need to be put in writing, and any discrepancies between verbal and written terms should be clarified.

Investigate The Company

Once you have settled on a franchisor, you will then need to investigate the company. Buying a franchise involves developing a relationship with the company; it is vital to make sure that it is the right relationship, therefore, take time to talk to its executives, ask questions and also gather information about the company on your own.

Attending a discovery day is a good opportunity for the franchisee to get to know the franchise. It is an opportunity to learn about their culture and understand the people who will be working with you. Make sure you ask questions and voice your concerns during discovery day. A typical discovery day involves one-on-one meetings, interviews, a visit to the franchise location, and group presentations.

A discovery day is also beneficial to the franchise company. It allows them to get to know you better and assess whether you are a good fit for their company. They will also evaluate your level of enthusiasm and commitment at which will dictate their decision to sell a business to you.

Acquire Finances

You cannot run a business without finances. Before you buy a business, make sure you acquire finances to cover the costs of running a business. Franchisors may help arrange finances, but you will also need to qualify for financing on your own. A credit score of 700 gives you a better chance of securing funding. You can finance your start-up through SBA loans, traditional bank loans, search funds, rollover for business start-ups (ROBS), or a government grant.

Create A Business Plan

A business plan is not only a guideline for your business, but it also aids in acquiring finances. It keeps you focused, helps you achieve your goals, keeps you on the right track, and thorough market analysis gives you a better understanding of your market. Document every detail of your business to ensure that everything runs smoothly.  

A business plan shows investors that they are investing in a company with a vision and one which will last and grow. It helps them understand your vision and passions and shows where their money is going. Franchise opportunities require careful considerations, and creating a business plan helps assess your franchise's visibility.

Talk To a Franchise Attorney

If you are considering franchising, make sure you talk to a franchise attorney. These attorneys specialize in franchising, and they have a vast knowledge of franchising. A qualified franchise attorney will help you know everything that you need to know about franchising. This is because they know what to focus on in the FDD and the franchise contract; writing and working on similar documents gives them better insight. They know what to look for when reviewing the documents.

A good franchise attorney also helps the franchisee choose the best entity for their business. The right entity determines the legal rights and liabilities of the business and its taxation. You can also rely on your attorney for help when things do not work out as you expected. They also form an invaluable asset for the business as they can help negotiate the terms and conditions of the agreement and offer guidance to the vague aspects of the contract.

Picking a Location

Take into consideration the guidelines and recommendations of the franchisor to help you find an ideal location. In some cases, the franchisor may have strict rules for commercial real estate, including the number of parking lots, territory requirements, and the minimum squire footage.

Leasing a space is cost-effective, and less risky; however, if you intend to be in the place for more than seven years, consider buying your location. Whether it is leasing or purchasing a space, consider the safety of the area, the location of your employees and customers, the square footage, and negotiate the price. 

Acquire The Necessary Skills And Knowledge Of Running A Business

Before you open your business, take the opportunity to acquire the necessary skills and knowledge to run a franchise. Typically, the franchisor will provide training sessions that will tackle everything you need to know about the business, including the policies and guidelines, the products and services the systems you will be using. Working in a store is an ideal way of determining how a franchise works and whether your skills and personality match the company culture.

Open Your Business

This is the final step; it comes after you have finalized everything, and the franchisor representative approves your location. The franchisor will give you a hand during the actual opening. Marketing your grand opening is an excellent way to promote and market the business. It ensures that you build your customer base quickly. Before the grand opening, potential alert customers of the existence of your store, and you can also do a soft opening to identify and deal with the operation problems before the grand opening. The franchisor has pre-determined promotion ideas, signage, and ads for the grand opening in most cases.

It is worth noting that franchising does not eliminate the risks of owning a business. However, it allows the entrepreneur to handle the responsibilities that come with owning a business. It comes with an already Get Matched Now.

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