Buying an existing franchise - Franchise Resale
According to the Natwest/BFA 2005 Survey, 32% of franchisees entered the market via the purchase of existing franchises know to many within the industry as "franchise resale". We feel that advice of a BFA affilaited accountant is vital.
If you are thinking of buying a franchise, then the more thought you give to what is actually entailed, then the more likely you are to succeed at running one.
The first question to ask is “what is a franchise?” According to the BFA “Franchising is essentially the permission given by one person, the franchisor, to another person, the franchisee, to use the franchisor's trade name, trade marks and business system, in return for an initial payment and further regular payments.”
At the end of the day, if you are thinking of buying a franchise then you must be prepared to be realistic. Many franchisees risk their homes, savings and family relationships by investing in business, consumed by dreams of becoming successful business owners.
When looking at buying a franchise then you should make some basic checks on the Franchisor. Firstly is the franchisor a member of the BFA. All members of the BFA must:
Be prepared to disclose to you their financial record, the records of their Directors, the basis for the financial projections they make on your particular franchise proposition; and to identify their existing franchisees.
Operate with a franchise agreement, which is comprehensive, protecting your rights as well as theirs.
Have proven that their product or service can be sold profitably in the market place.
Have proven that they can deliver the "know-how" of their business to a franchisee so that they can be successful in the market place.
If a Franchisor is not a member of the BFA, they may still be a good Franchise - but you must still satisfy yourself on the four or five principal criteria the BFA uses - are they disclosed, ethical, viable and franchiseable and do they have a proven track record.
Some questions that you should consider before buying a franchise: -
Are you the sort of person who can succeed in business?
Have you any funds you can put into the business?
Are you familiar with the legal requirements that will be placed on you as a business proprietor?
How much will you earn during your first year?
Valuing the goodwill of an existing franchise – we will consider this in more detail below
The valuation of a franchise
The value of a business can vary according to many factors. Businesses that generate sustainable profits are often valued at a multiple of profits adjusted for any unusual one off items. Smaller franchises are usually valued at a lower multiple than similar larger companies. Mature cash generating businesses are often valued in a similar way based upon cashflow. As asset valuation might be appropriate for stable businesses with significant tangible assets such as property. When considering the value of a business you should look at the price of similar franchises/businesses, consider goodwill, the number of contracts in place, the potential for growth and the number of people interested in buying it as these factors all my influence the ultimate valuation. Valuing a business is not a precise science however franchisors will often have rules of thumb that guide valuations.
Do not be consumed by the dreams you see in a crystal ball. Do be persuaded by a balance sheet, by a series of complimentary personal recommendations, by accredited expert advisors such as a bfa affiliated accountant, by the people who have chosen the same option before you, by the hard-nosed common sense you will need when you are in business.
Contact us now for a free initial consultation to discuss the franchise you are interested in, bring all financial documentation for free confidential advice. If you are looking to sell your franchise by unsure of the value, we can offer a valuation of your business.
For details on franchise resales and their listings -
http://uk.businessesforsale.com/uk/Browse/Franchise-Resales-for-sale.aspx
http://www.daltonsbusiness.com/FranchiseResalesSearch.asp
http://uk.franchisesales.com/uk-franchises/1358401-1/BrowseResales.aspx
http://www.franchise-uk.co.uk/franchise-resales.html
http://www.selectyourfranchise.com/uk/franchise-directory/Franchise-Resales.html
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