How to Buy a Franchise: 5 Best Practices for Buying a New Franchise Opportunity

How to Buy a Franchise?

5 best practices for buying a new franchise opportunity

There's a lot that goes into investing in a new franchise. If you want to learn how to buy a franchise, check out some of these best practices.

How to buy a franchise

Wondering how to buy a franchise?

Trying to decide if a new franchise opportunity is a good choice for you?

If you're starting a new business, buying a franchise is one of the best options available. It can be less risky than starting completely from scratch.

As opposed to buying an established franchise opportunity, becoming a part of a new franchise can be even better in some ways. However, there are a lot of things you'll need to think about to ensure you're making the right choice.

Below we'll tell you about the 5 best practices for how to buy a franchise.

1. Research the Franchisor Extensively

When you're thinking about buying a new franchise opportunity, it's important that you do plenty of research on the franchisor to make sure they're worth your time, effort, and money.

You should find out everything you can about the franchisor's history and track record as well as the people behind the scenes. You should also find out what you can about the franchisor's financial well-being to ensure that they'll have enough capital to help with your growth.

You should do some digging online to find out more about a franchisor. You may also want to speak to some of the current franchise owners as well.

2. Ask Questions

When thinking about buying a franchise opportunity it's important that you feel open to ask questions. If you have any concerns, bring them up.

You'll want to speak plainly with the franchisor to find out exactly what you can expect from working with them. Ask as many questions as necessary to find out what you can about marketing methods, training tools, technology, operations, and provided support going forward.

3. Be Ready For Legalese

When thinking about joining a franchise, you should also be fully prepared for looking over the franchise disclosure document. You'll want to review it carefully to ensure that you understand exactly what your legal responsibilities and rights are.

If dissecting legal documents isn't your strong suit, you may want to hire a franchise attorney to help you look over it. While it will cost you to hire an attorney, it will be well worth it and can help you avoid big problems later on down the line.

4. Know Your Worth

One of the best practices for buying a new franchise opportunity is to remember that you have value. New franchisors don't hold all the chips and chances are that they need you just as much as you need them.

Because of this, you may have a bit more wiggle room when it comes to negotiating a franchise agreement and getting a deal that is right for you. New franchisors may be willing to work with you a bit more than an established franchise will, as long as they can still maintain the consistency of their franchise brand.

5. Understand Your Market

In addition to knowing everything you can about the franchisor, you also need to think carefully about the market at large.

Look at the trends locally and nationally and be realistic about whether you believe the franchise truly has a place in the marketplace. Look at your community as well as the economy and consider what your community's interests and needs are.

You need to be sure that the franchise you're considering will be appreciated. Don't just rely on wishful thinking or your own personal preferences when deciding to buy a new franchise.

How to Buy a Franchise With These Best Practices

If you're ready to be a business owner, buying a franchise can be a great place to start. However, while learning how to buy a franchise isn't hard, making a profitable choice is much more difficult. It's important that you remember these tips if you want to be confident that you're making the right decision with your purchase.

Ready to get started with buying a franchise? Click here to start looking for a new franchise opportunity now.

BizNexus -Learn More From Our YouTube Playlist:

BUSINESS ACQUISITION

Have you checked out our podcast?

THE BIZNEXUS ROUNDUP

Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.

Buying an Established Business: Why It's Better Than Starting a Business

Starting A Business

Better to buy one than startup

There are so many small businesses today and they come with many risks. Buying an established business is a better option.

For this reason, many entrepreneurs choose to buy an established business instead.

There are many advantages to buying an established business and, in many cases, it's a better option than starting one.

With an existing business, the company's financial documents serve as a road-map for optimizing the business moving forward.

However, purchasing an existing business gives you a head start.

There are different ways to start a business. Many savvy business owners prefer to buy an established business over a startup.

Here's why:

Starting a new business is not easy. Did you know that 50 percent of small businesses fail in the first 5 years?

For this reason, many entrepreneurs choose to buy an established business instead. Franchise opportunities, for example, end in failure only 17 percent of the time.

There are many advantages to buying an established business and, in many cases, it's a better option than starting one. Read on as we explore the top reasons why purchasing an existing business is a great investment.

Existing Cash Flow and Customer Base

The hardest part of starting a new business is establishing a customer base. Without a steady stream of customers, your cash on hand is minimal.

By purchasing an existing business, you can leverage the prior owner’s hard work. The company has already established itself in the marketplace and there is brand recognition from day #1.

There are processes and procedures in place for servicing customers and delivering a product. Perhaps most important is lessons learned from existing employees and customers. You can learn from the previous owner's failures and so you won't be likely to repeat their mistakes.

Using Historical Financial & Performance Data

Another advantage is inheriting years of financial & performance data. In a startup, you're jumping head-first into the unknown with little existing data to guide you. Everything is a "first," and you just need to make fast, repeat decisions with your gut and hopefully a really, really smart management team. But that cannot ever replace experience.

With an existing business, a the company’s financial documents serve as a road-map for optimizing the business moving forward. You have a baseline and existing trajectory to work off with improvements, and you can evaluate the company’s operating expenses to reduce waste and increase the profit margin.

This financial snapshot serves many other purposes. With less uncertainty, your business is more likely to secure loans, and you may be able to attract other investors with an updated business plan.

Purchase at a Discount

If you're buying at a multiple of inefficient cash flow level, you are likely to acquire business assets at a significant discount. This is especially true for startups that are overpaying too many employees, or purchased a lot of capital equipment.

Social Media Footprint

Nearly every business in the United States has a social media footprint. It is not easy to acquire a robust following or steady web traffic on a blog.

However, purchasing an existing business gives you a head start. Now, you can leverage off of the prior owner’s Facebook or Instagram account.

In addition, there are e-mail marketing lists to inherit. You can start running digital promotions immediately after acquisition. For a startup, prospective customer information has to be collected the hard way, from scratch.

A Recap of Buying an Established Business

There are different ways to start a business. Many savvy business owners prefer to buy an established business over a startup.

The primary reason is taking advantage of all the time and money the prior owner put in. Acquiring business data like financials and e-mail marketing lists go a long way.

How to Buy or Acquire an E-Commerce Website for Sale

How to Buy a Digital Business?

E-Commerce Website for Sale

Buy an E-Commerce Website for Sale

Want to own and run your own online digital business? You basically have two options:

1. Establish a new company and start from scratch.

2. Skip the startup cluster consider acquiring an existing e-commerce website business already on a clear upward trajectory, and apply your creative entrepreneurial pivots and experiments while enjoying the benefits of “cash flow” (something startups were expected to think about prior way back in the dark ages of the early 21st century).

In this guide, we are focusing on how to buy an e-commerce website business that’s for sale. We will go through the entire process so that you can make the most out of the purchase and set yourself up for success.

What Type of Business Do You Want and Can You Buy?

If you are planning to buy an e-commerce business, it is important to sit down and think about two things – your lifestyle goals and financial needs. Your goal here is to analyze your current situation and try to stay true to your budget, day to day operational involvement interests, and values, -all keys to successful entrepreneurship over the long-term.

What Are Your Future Objectives?

You should never stop dreaming big, but when it comes to setting the objectives, it is important that they remain realistic. Ask yourself, why are you buying an e-commerce business? This will help you to stay focused with realistic objectives that will shape up your business model.

If you are a beginner, you may be purchasing a company to learn all the tricks of the trade before you engage in starting a business from scratch. In this case, you may want a helpful and experienced e-commerce entrepreneur that wants to sell their e-commerce website who is willing to share essential details about how they made the e-commerce venture that you are consider buying into a profitable business.

You may also think that you have the necessary resources and skills, which is why you want to save time and buy a company that has already positioned itself in the market. This way, you can invest improving resources, and scale the business to the next level.

It is also vital to consider how much time you can dedicate to the business that you are buying. If you plan for this to be your full-time job, that’s great. But if you consider e-commerce business as an additional income, it is important that it won’t take you more than a couple of hours in a day to operate the e-commerce website.

What is Your Passion Aligned with Your Skills?

When choosing the market in which you will purchase an e-commerce business, it is vital to consider two areas – your passions and skills.

We all have our favorite market segments within an industry – some of us are crazy about clothes, others are health freaks that care about staying in shape, or you may be into tech products and gadgets. It would be great if you could buy a business in one of the market niches that you are passionate about. This way operating the e-commerce business won’t be merely a job, but it is aligned with your passion as well.

It is also important to consider your knowledge and skills. If you have graduated from an art university, you may consider selling homemade art or crafts and other related products.

It can also be very helpful if you have tech-related knowledge. Knowing more about website optimization and SEO can help you with search engine page ranking. Being a good writer can be of great importance in preparing unique content to promote brand awareness and increase conversion rates.

The crucial thing is to ensure that you have the right skill set to run the business. If it's necessary, consider hiring someone else but make sure that you can incorporate that expense into your budget.

Think About the Resources You Have

Yes, you need to consider financial capital, which means that you should have enough money to purchase and invest in the business to take it to the next level.

But we are also talking about other resources. You need to ensure you have enough time to run the business, a computer or laptop you will use for administration, etc. You can also use your current social media accounts if you are popular on Facebook or Instagram.

How to Determine the Price for an Ecommerce Business

It varies from one e-commerce website business to another, and ultimately depends on your estimation and business valuation, but the general rule says that an e-commerce website business can be valued anywhere from 10 to 24 times its monthly profit. In other words, if you have a business that secures $3,000 per month, you will need at least $30,000 to purchase it. The price may vary depending on the potential of that e-commerce business’ ability to increase profit.

The main idea is to buy a business that is profitable and can remain profitable as this should be your primary goal when running e-commerce business. The estimated monthly earnings should be high enough to motivate you to work on growing the company.

Here is more about how to evaluate the worth of an ecommerce business

Naturally, business owners wouldn't want to sell their business for less than its worth. There are a number of valuation methodologies you can use to determine the fair value of a business. Let's take a look at what it takes to fairly evaluate an e-commerce business for its worth.

There are a few ways you can determine the value of an e-commerce business.

1. Multiple of Seller Discretionary Earnings. You might evaluate a business's worth by looking at their historical earnings. When favorable factors are agreed on, the businesses expected worth will be higher during the valuation.

2. Discounted Cash Flow (DCF) Analysis isn't the primary way to evaluate the worth of an e-commerce business, but it is a useful analysis.

3. Online business sales fluctuate more widely than those of traditional businesses, which make this analysis less suitable for e-commerce. These can include a company's size, years in business, yearly revenue, and so on.

4. A company with an active customer base and positive market outlook will be worth more than a company without active customers or a profitable niche.

Evaluating the worth of a company doesn't come easy, however, it's a necessary step you must take before finalizing a sale.

Where to Find an E-commerce Website Business to Purchase

Once you have the required capital, the preferred market niche, and other desired variables, it is time to look online and find an e-commerce business to buy. The good news is that there are numerous marketplaces where you can buy and sell e-commerce websites.

However, we advise you to stick to the reliable ones, such as:

• Shopify Exchange – exclusively designed for Shopify stores, and an excellent place to find a website fast. The great thing about this website is that it is free, and there is no success fees or other charges.

• Flippa – you can choose between thousands of different business, which means you have a vast range of websites to pick from when buying.

• Empire Flippers – it is interesting to note that every website put up for sale passes through the screening process of the administrators.

• BizNexus - Inventory of online businesses for sale 100% vetted by expert online brokers from all around the world. Sellers are prohibited from posting directly on the site so there is a built-in level of vetting required as every listing on the site is a business that a broker see’s as sellable, and that a broker has initially vetted themselves.

Have you been thinking about starting your own online store? Not sure if the life of an ecommerce entrepreneur is for you? Don't worry, we've got you covered. We've created this video to break down the advantages and disadvantages of starting an ecommerce business.

How to Be Sure You Made the Right Decision

You’ve found e-commerce business that seems like an attractive purchase, but you are not 100% sure that you made the right choice. If you want to be certain in your decision, just follow these steps.

Don’t Hesitate to Ask Questions to the Seller

The chances are that the seller has listed some basic information about the website and themselves, but it is always wise to ask for more details. Start by trusting yourself and conducting online research on the owner and the business.

See if the seller has LinkedIn or other social media profiles, and ensure that they are a real person, and not someone hiding behind a fake identity. Do an online search for the business, too, as it may encounter user reviews and other valuable information.

Here are some other questions to ask the seller:        

1. How long has the business been running – the longer the better and bigger chances for success. Businesses with longer operation period provides a lot more data for making an informed decision.

2. Why they are selling the business –look for an authentic reason. Perhaps they bought another company, or they got a better job. Maybe they are moving to another country. Whatever the reason, you need to make sure that they are telling the truth.

3. Tell me more about yourself – that includes the previous experience in e-commerce business, other business they own, and anything else that may be relevant to your purchase decision.

It is also vital to acquire as much information as possible about how the business is operated. Some e-commerce websites have documents that are official standard operating procedures. That will make you're taking over a lot easier as you have a set of rules to follow. Additionally, ask them if they run the business themselves or hire additional staff.

Ask for Sales Data and Website Visits

You should always demand the seller to send you a profit and loss statement for the previous year. That includes detailed information about revenue, gross profit, cost of goods sold, operating expenses, net income, etc. In other words, you want a comprehensive financial report that would prove the claims that the seller makes about earnings.

Furthermore, you may want to check the website traffic. The best way to do that is to ask for access to Google Analytics. There is no need for the seller to worry about anything as the access can be read-only option for this tool, and this is all what you need...

Here are some things to keep in mind:

• If you notice a bounce rate less than 30%, or higher than 90%, and session duration lower than at least 45 seconds (or less than two opened pages per session), it may be a sign that the traffic sources are untrustworthy.

• You want to ensure that the website has had a constant number of visits over the last several months. If the number has significantly increased lately, make sure to determine the reason for that.

• Make a difference between organic, referral, direct, and paid traffic, as well as the one coming from social media. Any option that seems legit and doesn’t require any investment is acceptable.

Finalizing the Sale

If you think you made the right choice, and want to finalize the deal, it is time to enter the negotiation phase. Since you asked so many questions to the seller, it is only natural to introduce yourself. Tell them a bit more what makes you a reliable and trustworthy buyer.

Once you establish trust, you can talk about your plans with the business. It is something that a seller might want to know, especially if they care about their e-commerce business. Finally, ask them about the price, or give your offer. However, make sure to explain why you’ve chosen to offer that amount of money (estimated monthly earnings, future potential, etc.).

Now, once you agree on the price, you may want to ask an attorney to analyze all legal aspects of the deal. That might not be necessary if you are buying small e-commerce online business and using a marketplace as a mediator. However, make sure that the seller confirms there are no lawsuits currently related to the business.

Finally, determine all the details about the payment. You may want to pay in installments, but the seller needs to agree on that. You should also ensure to agree on a support period during which the seller is obliged to answer any question or concern that you have about the business. Also, make sure to negotiate social media accounts, mailing lists, product images, and other resources that may be a part of the transaction.

Final Take

If everything goes right, you will soon become the owner of an e-commerce website. As you can see, the process is not complicated. However, it will take a bit of time and effort to choose the right company, and make sure everything goes smoothly. Once you finalize the transfer, it is time to design a strategy to skyrocket your e-commerce business and boost your profits.

Buying an Established Business: Why It's Better Than Starting a Business

There are so many small businesses today and they come with many risks. Buying an established business is a better option. Here's why.

Starting a new business is not easy. Did you know that 50 percent of small businesses fail in the first 5 years?

For this reason, many entrepreneurs choose to buy an established business instead. Franchise opportunities, for example, fail only 17 percent of the time.

There are many advantages to buying an established business and, in many cases, it's a better option than starting one. Read on as we explore the top reasons why purchasing an existing business is a great investment.

Existing Cash Flow and Customer Base

The hardest part of starting a new business is establishing a customer base. Without a steady stream of customers, your cash on hand is minimal.

By purchasing an existing business, you can leverage the prior owner’s hard work. The company has already established itself in the marketplace and there is brand recognition from day #1.

There are processes and procedures in place for servicing customers and delivering a product. Perhaps most important are lessons learned from existing employees and customers. You can learn from the previous owner's failures and so you won't be likely to repeat their mistakes.

Using Historical Financial & Performance Data

Another advantage is inheriting years of financial & performance data. In a startup, you're jumping head-first into the unknown with little existing data to guide you. Everything is a "first," and you just need to make fast, repeat decisions with your gut and hopefully a really, really smart management team. But that cannot ever replace experience.

With an existing business, the company’s financial documents serve as a roadmap for optimizing the business moving forward. You have a baseline and existing trajectory to work off of and improve, and you can evaluate the company’s operating expenses to reduce waste and increase profit margin.

This financial snapshot serves many other purposes. With less uncertainty, your business is more likely to secure loans, and you may be able to attract other investors with an updated business plan.

Purchase at a Discount

If you're buying at multiple inefficient cash flow levels, you are likely to acquire business assets at a significant discount. This is especially true for startups that are overpaying too many employees or purchased a lot of capital equipment.

Social Media Footprint

Nearly every business in the United States has a social media footprint. It is not easy to acquire a robust following or steady web traffic on a blog.

However, purchasing an existing business gives you a head start. Now, you can leverage off of the prior owner’s Facebook or Instagram account.

In addition, there are e-mail marketing lists to inherit. You can start running digital promotions immediately after acquisition. For a startup, prospective customer information has to be collected the hard way, from scratch.

A Recap of Buying an Established Business

There are different ways to start a business. Many savvy business owners prefer to buy an established business over a startup.

The primary reason is taking advantage of all the time and money the prior owner put in. Acquiring business data like financials and email marketing lists goes a long way.

BizNexus -Learn More From Our YouTube Playlist:

BUSINESS ACQUISITION

Have you checked out our podcast?

THE BIZNEXUS ROUNDUP

Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.

How to Buy a Business | Four Vital Questions to Ask

How To ACQUIRE A Business

Four Important Questions to Ask

It can take a lot of time and effort to develop a business from scratch. This is why people savvy enough to tap into available public and private resources decide to buy an existing business. However, going forward with the purchase is not an easy decision to make. Here are four important questions to ask during the process of buying a business.

Where to Find A Business to Buy?

The initial step is to find a place where you can buy a business. Many people go to brokers seeking help to identify the right business for them. Others check industry publications, newspaper advertisements, or various online business for sale platforms.

Online marketplaces can be a great way to find a business to buy, especially if you’re looking to focus on digital business and e-commerce startups that are increasingly putting themselves up for sale.

Is That Business the Right Fit for Me?

Here are three key questions every entrepreneur like you should ask themselves when vetting an acquisition:

1. What are my skills and interests? – You would be more motivated to succeed with a business in a niche that you are passionate about. Needless to say, you want to make sure you know the industry enough to take over the business effortlessly.

2. What is my budget? – The price tag of the business needs to fit your pro forma budget. Furthermore, the business should generate monthly sales to cover the cost of operations with the potential of making a profit. If you need additional capital, you can consider getting a business loan from a financial institution like your local bank.

3. Do I have time and resources? – There is no point in buying a business if you are going to neglect it. You need to have enough time, effort, and energy to ensure that your business has the right allocated resources to become a profitable investment.

What Will You Get for the Price OF THE BUSINESS?

The chances are you will have some wiggle room when negotiating the purchasing price, but before you do that, ask the business seller exactly what assets will transfer for that price? Yes, you will become the owner of the business & manager of the team in place, but will you also get its inventory, social media accounts, a functioning website, and other relevant items?

Do You Have Accurate Historical Financial Reports?

The general rule of thumb is to stick to buying businesses that generate profits for at least a couple of years. The current business owner needs to be ready to provide financial statements and reports for at least that period. This includes a detailed overview of revenues, expenses, and debts. Also, it would be great if they include a projected financial statement.

Learn More About Business Management

While you should have general knowledge about managing a business, we are talking about the day-to-day operations of the business you are acquiring. For example, you may need permits and licenses to continue operating the business. There may also be operating procedures that you can adopt as that can make you a better manager.

Here are some more general questions related to the business operations:

• If the business that you are buying is digital, the product or service will be sold through a subscription model, or use one-time payments?

• Are there any employees whose salary you are expected to pay?

• Are there any contracts with vendors or other suppliers or providers? How long do they last, and is there an extension option?

Are you an entrepreneur?

An Austrian economist defined entrepreneurship as the “competitive behavior that drives the market process”.Thus it creates value for both market and society. Entrepreneurship is the process of creating something new of value by devoting the necessary time and effort, assuming the accompanying financial, psychological, and social risks, and receiving the resulting rewards of monetary and personal satisfaction and independence.

What problems can small businesses face in terms of entrepreneurship?

America's small business owners' optimism took a modest downturn in June, according to the NFIB Small Business Optimism Index, slipping 1.7 points to 103.3. While optimism remains at historically high levels, the June figure reverses the gain posted in May, with six components falling, three improving, and one unchanged.

Fifty-four percent reported capital outlays, down 10 points.

The net percent of owners reporting inventory increases fell two points to a net-zero percent, indicating no further building in inventory stocks in June.

The net percent of owners expecting higher real sales volumes fell six points to a net 17 percent of owners.

Twenty-seven percent of those reporting weaker profits blamed sales (down three points), 12 percent blamed labor costs (up five points), 11 percent cited materials costs, and nine percent cited lower selling prices (down two points).

Final Take On Buying A Business

As you can see, purchasing a business is both challenging and fun! You want to ensure that you pick the right business, which is why you should carefully evaluate all the details related to the purchase. Take as much time as necessary to ensure you are making the right decision as this can be the difference between success and failure down the road.

BizNexus -Learn More From Our YouTube Playlist:

BUSINESS ACQUISITION

Have you checked out our podcast?

THE BIZNEXUS ROUNDUP

Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.