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.

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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.

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.

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.