Last Updated: Jan-06-2017
Buying a franchise resale
So you’ve decided that you are going to buy an established business rather than setting up a business from scratch. You are not alone in having this particular thought because more and more people are recognising that to take over an existing business then develop and build it makes a lot of sense when compared to the risk involved in starting with a new concept or idea.
An existing business has cash flow already, customers in place, staff (if appropriate to the business) and a brand presence.
Extending that thought process, it is only natural therefore that people seeking to acquire an existing business should consider an existing franchised business because doing so gives you the best of both worlds; an established business with a current cash flow etc to build upon and the security of operating a business where the success rates of franchising are well known to be higher than independent operations.
Most franchisors will have franchisees within their network who have decided they want to put their business on the market and sell. Some franchisors won’t openly advertise the locations that are for sale because most of their franchisees wouldn’t like it to be general knowledge they are thinking of moving on. They will however discuss them with you, confidentially, once you have passed the franchisor’s initial approval stage. You can then decide whether to opt for a new location or to take over one of their existing franchises.
Within the franchise industry business sales or transfers are known as “Resales”. This is because a franchisor has sold the location/territory initially and now the licence to operate in that location/territory is being sold-on to a new franchisee, hence the term “franchise resale”. In some more mature networks a specific location may be re-sold several times over as the various owners of that business have decided to capitalise on their investment and hard work by selling the business on to new owners.
Why existing franchises are for sale
One out of every twelve businesses in the US is a franchise operation; with a new franchise business being opened every 8 minutes of each business day.
These figures alone show the enormity of the US franchise market, and because of this the resale of franchise businesses is also huge.
Franchisees may wish to sell their franchise business for a number of reasons:
- they are retiring
- they are relocating
- they have other business interests that they wish to concentrate on
- their exit plan was to sell the franchise after a specific number of years in order to make a profit
- or they may simply have realised that the business is not right for them
A franchise resale may be a good option if you find the thought of building up a new franchise from scratch a little bit daunting, but expect to pay a premium for buying an existing franchise – sometimes as much as 30%.
There are, however, added advantages to paying a premium. As well as the traditional benefits of franchising, including the training, support and use of a proven business format, when purchasing a franchise resale you are able to take advantage of actual trading accounts and of course an existing client base, making your future a little easier to predict.
An established franchise business will be able to provide some actual performance figures, together with any management figures produced. You should be able to verify these figures with the franchisor, and also seek advice from an accountant as to whether the sale price represents value for money.
If the franchisee has any staff it may be useful to ask them what they think of the business. And why not also conduct some of your research through the existing client base – are the customers happy, can you retain them once you have taken over, how can you enhance the customer experience in the future and are there more customers out there?
Pay some attention to the existing franchisee’s relationship with their customers and if there appears to be little loyalty be aware that you may have to rebuild confidence and equate this to the premium that you may have to pay. Conversely, if you find that the existing franchisee has an excellent relationship with clients, consider a hand over period to allow a smoother and more effective transfer of ownership and of course ultimately success for you!
Steps to buying a franchise resale
So what do you have to look for when taking over a franchise resale? How can you be sure the business is sound? Surely it is more expensive to buy an existing business than starting up from scratch and why is it being sold – what’s wrong with it?
All of these questions you would be totally right to ask and equally right to expect clear concise answers from both the franchisor and the selling franchisee. These however would also be the questions you would ask the seller of a non-franchised business, they are the logical questions to ask. It is not that you need to be more or less diligent with your questioning about a franchise; you should in-fact be able to receive more comfort about a franchise resale than an independent business transfer or sale because with a franchise resale you have the franchisor to corroborate the information about the business involved. They will not be able to guarantee the information but they will know a lot about the particular business and will certainly have a view on its performance and potential.
These therefore are the key elements of successfully buying a franchise resale:
The selling franchisee should produce a detailed overview that provides you with all the necessary information about their particular business to enable you to decide if you are interested or not in acquiring it.
This overview is not about the whole franchise opportunity, you will gain that information from the franchisor whilst going through your interview/fact finding process about which franchise business to join. This is about the specific business opportunity you are considering buying.
Other than the sales turnover levels and profit figures shown within the trading accounts, which should of course be up to date, the amount and type of information contained in a prospectus will vary according to business type. For example premises based businesses will have a Prospectus which contains details of the staff, the equipment both owned and leased, the premises etc, while a cleaning franchise for example will have simply details of staff and equipment and a single person consultancy business will be simpler still.
The Prospectus should also contain a description of the location/territory and the marketplace within which the business operates. It should also have the reason that the business is being made available for sale.
Most franchisors will assist their franchisees to write such a document or outsource that role to third party advisors.
The business will naturally have an asking price attached to it and this should, in most cases, have a close relationship to the levels of income the particular business generates. An enlightened franchisor will have assisted the franchisee in arriving at the decision about asking price and the very best advice is for the franchisee to obtain a franchise specialist’s totally independent view as opposed to asking either the franchisor or their own accountant to value the business. The logic behind this is that you as the prospective purchaser will use an accountant who will arrive at a comparative value and if the seller has also taken independent advice the chances are both valuations will be fairly close and so the gap to be bridged through negotiations will be smaller than it otherwise might have been.
There are various ways to arrive at the ball-park valuation for a business but the majority of accountants will apply a multiple revenue to do this. That said, business valuation is not an exact science. Its purpose is to give a reasonably close idea about where negotiations on the final price should start from and there will be more than simply a profit multiple that decides what is eventually paid.
Negotiation is a delicate and often frustrating part of any sale/purchase because the buyer and seller have conflicting goals as each participant wants to get the most for what they have to offer.
As the purchaser you will need to believe you can better the seller’s performance and make enough money to cover the asking price; any finance costs and of course make a profit. The seller must be clearly demonstrating what the business can deliver and the capacity of the marketplace/opportunity that is there to be developed. The seller should also take into consideration that the buyer may be considering more than one opportunity so should not “push it too far”.
Negotiation is about compromise, about give and take and seeing the position from the others perspective. “Hard ball” play from either party negotiating simply ends in frustration and failure. That said, negotiations are mostly very friendly affairs with both parties knowing there is a mutually beneficial goal in sight – agreement.
If one side thinks they could have got a little bit more and the other side thinks they paid a touch too much the deal is probably at just about the right level.
Any business sale requires legal documentation and franchise resale transactions are no different. With a franchise resale however there are three parties involved; the seller, the purchaser and the franchisor. Yes, the franchisor has an interest in the transaction and should be a party to the final Sale and Purchase Agreement. This is because in a franchise resale the rights to use the business name, the logo and the knowhow remain with the franchisor so they must approve the terms of the sale of one of their businesses.
Advantages of buying a franchise resale
Franchising has been providing Americans with business opportunities for over 150 years, and as more franchise companies are becoming established, the number of businesses bought through the sale of existing franchises is becoming more and more popular.
The benefits of purchasing a franchise which is already trading are clear to see:
- Cash flowing through the business from day 1
- Brand presence in the local market place
- Clients and customers from the start
- Stock, staff and property (if appropriate) all in place
- Business planning is easier to develop from known data
- Smoother funding process due to the proven business history
Developing a business presence in a new territory can be time consuming and costly so the advantage of taking on an existing franchise, that is already known in the area and which has current customers and clients, is clear. That is not to say growing any business is easy – far from it – but it is easier to move on and drive a process that is already underway. To speed up a rolling ball as opposed to starting it from a standstill position is always the energy efficient option.
The above positive elements which demonstrate why a franchise resale would be a strong option to consider also make the opportunity attractive to secure finance for your new business. All businesses will usually require some form of banking facility and many will require additional funding most often in the form of a loan. If not a loan then, at the very least, an overdraft facility is usually required to support a level of working capital.
When presenting a structured business plan to a bank to secure these facilities, the strength of the proposal and therefore the likelihood of its being approved will, in part, depend on your business projections. With an existing business there is clear evidence of what has been achieved by the current owner, so projections can be based on fact and this will give considerable weight to the proposal. This in turn will make it more likely to be accepted because the previous revenue history and brand presence, plus your drive and background all combine with a franchise resale to make this option the logical route into franchising.
Why buying a franchise makes economic sense
Higher chance for success through brand awareness
Most franchise businesses, especially re-sales of existing locations, have a customer base that is loyal and comfortable with the pre-existing corporate image. Few people like to risk their consumer dollars on an unfamiliar company product or service. This is particularly true if and when a familiar franchise with similar qualities or prices already offers that value. This brand awareness creates the potential for higher sales and lower marketing costs, both factors that increase the likelihood of success.
Proven systems and standards in place
Franchises already have established methods of doing business. Through the test of time and competitive challenges, these systems are proven to increase sales and productivity. This lessens the guesswork, eliminates the lengthy learning curve, and reduces costly errors. In the end, these reductions mean more time for focusing on the true business at hand, customer service and satisfaction, higher sales, and higher profit margins.
Initial and continuing operational support
Throw the “fear of going alone” out the window! Franchise companies have professionals dedicated to ensuring that franchisees have the support to get started. Indeed, as part of their growing franchise family, your new membership means you will have experienced staff to walk you through the shaky moments, in the beginning and ongoing throughout the years, whenever you need assistance. You will always be able to pick up the phone and reach supportive members of the franchise family.
Training programs and reference materials
With operational support comes training programs to assist you and your employees with standards of success. Since the franchisor has a vested interest in raising positive brand awareness, your success is important. For this reason, franchisors offer ongoing training, the sharing of new, cutting-edge techniques, system upgrades, service enhancements, and product developments.
Easier access to financing
Since many businesses fail from undercapitalization, access to financing is important. Obtaining financing is much easier for a franchisee because banks recognize the business brand and model of most franchisors. Banks know they have a better chance of receiving payments with interest from a business with a proven model and support system in place.
Marketing assistance provided
If you’re buying a brand new location or a franchise on re-sale from a retiring owner, either choice will require marketing. The franchisor provides assistance with proven marketing strategies for retaining and attracting customers. Frequently, franchisors conduct their own advertising and promotion on the national level without much or any cost added to the franchisee. In addition, staff usually helps with marketing plans and promotions for grand openings.
Economy of scale increases purchasing power
Because franchisors make large-scale purchases, prices for everything can be lowered significantly. This commonly includes uniforms, supplies, equipment, and even construction materials for a new location. Since relationships are previously established, bulk purchases or consignment acquisitions are more readily available.
Franchisors understand the reductions in sales caused by competitors. For this reason, most franchisors will agree to prevent the same franchise brand from opening within close proximity to the franchised location. Franchisees enjoy these territorial guarantees for as long as they own the franchise.
Lessening risk of failure through FTC mandates
The Federal Trade Commission (FTC) helps lessen the prospective franchisee’s risk by mandating franchisors to provide crucial information about the business prior to signing a purchase agreement. This information includes any litigation, audits, aspects of the company’s history, and the names of other same-brand franchise owners and their contact information. Mom and pop businesses don’t have such an inside advantage.
General peace of mind
There is a general lessening of anxiety in belonging to a professionally organized team. Yes, you do have to pay fees to the franchisor for the goodwill of a brand name, but the advantages listed above clearly offset those fees. Why? Even without considering all of the cost savings of marketing support and bulk-supply purchasing, the costly mistakes of an independent business owner are where the real expenses accrue. A smart business owner would much rather pay a fee for experience, support, and brand recognition that prevents expenses many times that amount from otherwise avoidable mistakes. Buying and operating a franchise just makes more economic sense.
Key considerations for buying a franchise resale
If you are thinking of buying a franchise in an established and mature franchise system, you should consider buying an existing business from an outgoing franchisee as there are many benefits to an investment of this nature – staff, customers and cash flow from the start, premises and stock in place and a proven business history to name a few.
While the benefits are clear to see, it is also important that you should not drop your guard when considering this type of purchase. All the rules which normally apply to the purchase of a franchise, apply equally to the purchase of a franchise as a going concern.
Here are the key areas you need to think about:
- As well as your research into the franchise itself, you will also want to find out about the reasons for the sale – is the franchisee retiring, have they found that the business is not right for them, or more worryingly, have they discovered a problem on the horizon that may have a serious impact on the profits of the business (e.g. main street)?
- Get advice from your accountant. How has the business performed, what do the audited accounts show, is the business profitable? It may not be if the previous franchisee has underperformed. You need to check if this is just a one-off, or if a large number of the network is having problems?
- Is the asking price reasonable, look at other businesses for sale in your region and again, speak to your accountant. How long will it take you to repay any borrowing to buy the business? Is that a reasonable payback period? Can the price be negotiated; are all the fixtures and fittings, equipment, stock, etc included?
- Take the trouble to investigate both the franchise and the franchisor thoroughly. Apart from the usual inquiries, try and speak to as many franchisees as possible to get their view as to the profitability and potential success of the franchise and of the support given by the franchisor.
- Be aware of the fact that you are not only buying a franchise but the business itself and therefore you need to make sure that upon taking over the business you will not be responsible for the liabilities of the outgoing franchisee and that the outgoing franchisee warrants the past performance of the business etc. Finally, you need to be aware that you will become responsible for all the employees of the outgoing franchisee and should therefore take steps to protect yourself against any potential liability from those employees.
- How is the sale being structured? There are two types of sale that the franchisee can employ; share sale or asset sale. These are both very different and it is important that you understand the implications of each. Ensure you seek legal and accountancy advice before committing.
- Do you have enough capital and security to buy into an established business? The costs will be higher than buying a brand new franchise where the concept has not been established. However an advantage of purchasing an existing business is that if finance is required you will have existing accounts to demonstrate to the bank how the business has been performing.
There is a lot to consider, but taking over an existing established franchise business could provide a quicker route to a higher return, and should be generating income from day one.
How to identify the best franchise REsale opportunity
It is not a case of finding the best Franchise REsale, but the best Franchise REsale that suits YOU. In order to find your ideal franchise REsale you need to ask yourself the same questions you would ask when considering buying a new franchise.
No two people are the same so it makes sense that not everyone will be suited to the same franchise. Don’t just jump at the first franchise name you recognize or consider to be a “good” franchise, as what is right for one person may not be right for you. While one person can make a success out of running a McDonald's franchise, if you don’t like retail or want to be less hands-on, then it could be a disaster. So no matter how good the brand is perceived to be, if it is not right for you then you will struggle to make a success out of it.
A franchise is only a success if the franchisees are successful. This is why a good franchisor will spend a lot of time and money in recruiting only those who are right for their business. In some instances can only take one bad franchisee to ruin or put a massive dent in the reputation of the franchise.
The question “what is the best franchise resale for me” therefore requires a lot of consideration and self-analyzing. To help you find the right franchise business for you then you need to ask yourself the following:
What do you like doing? As you will be working many hours in the franchise over a long period of time, you need to make sure that you would enjoy the work. List all your likes and dislikes, and then keep them at hand when researching opportunities. E.g. if you don’t like being stuck in an office every day, then you can discard any that encourage this. Or maybe you like being hands-on, again there are many franchises that require a hands-on owner.
What are your strengths and weaknesses? Again list all of your strengths and weaknesses. Are you good at managing people? Selling? Talking on the telephone? Working in a team? Head for figures? Meeting clients face to face? Use your strengths to help identify franchises that you may be suited to.
What type of environment do you want to work in? Do you want to work in retail, b2b establishment, an office or from home? Or maybe you want to spend most of your time in a vehicle? Do you want to manage from afar? Would you be happy working in a team or by yourself?
What industries interest you? List all the industries you would like to work in e.g. fast food, business services, real estate, finance, children, pets, beauty, automotive, recruitment, etc? Consider whether you want to work in an industry in which you have experience or do you want to try something new? A benefit of franchising is that you don't need experience in a particular industry to buy a franchise as you will be trained in all aspects of the business.
How much money do you have to invest? Knowing what you can afford will help you to narrow down your list of franchises. E.g. Retail franchises are expensive so if you do not have much money, then you should rule these out. Home based franchises and mobile franchisees will tend to require less investment.
Where geographically do you want to work? Are you happy to travel a distance every day or do you want to work close to home? It may sound like a stupid question as most of us would like to travel less and spend more time at home. But what if your ideal franchise is not near you, what is more important, getting that franchise or spending time with your family and looking at another option?
If you take considerable time to answer all of these questions truthfully, then you will start to identify the type of franchises that would interest you and be right for you. Spending time now doing extensive research will help you to not make costly mistakes in the future.
Best franchise resales to buy in a slow economy
The question, what are the best franchise resales to buy in a slow economy, is posed often by potential buyers of franchise businesses. Although there are some slight differences between independent businesses and franchise re-sales during a recession, the fundamentals are basically the same.
For instance, if all factors of individual management are equal, what matters mostly is the industry within which the franchise conducts business. If the industry suffers during an economic slowdown, so do most of those franchises associated with it. This has been seen with some gourmet coffee shops such as Dunkin Donuts and even some Starbucks. During tough economies many people are just not as eager to pay five or ten dollars for a cup of coffee. Pizza Hut and a number of other fast-food franchises have also had to shut down a number of units. Bennigans went completely bankrupt. The market became saturated with too many of these optional retail and high-priced restaurant units during a thriving economy, only to find that sales were not as robust when the recession set in.
So what are the industries that sustain revenues and, in some cases, thrive during downturns? Well, car dealerships that sell new vehicles usually do not. But auto repair shops have generally done well. When people begin tightening their belts, they pass on buying new vehicles and opt for better maintenance to protect the investment they have already made in their automobiles.
Similar to car maintenance and repair stores, home maintenance and repair stores also do well. Ace Hardware, for example, has shown good performance with solid growth over the past few years. People are choosing to improve their existing homes rather than purchasing new ones. Home Depot and Ace both have stellar customer service which helps to set them apart from many of their competitors. A company like Ace might be an opportunity for a buyer of a re-sale, because a failing store is likely a result of bad seller management. The primary concerns for a buyer of a franchise such as Ace would be location and actual consumer demographics and traffic.
Another industry that has performed well is health care and definitely senior, in-home care. Senior Helpers is a benchmark example of a company that has done well as far back as 2008, because they refrained from overbuilding and taking on too much debt during stronger economic times. Those solid fundamentals have been helping that franchise to grow during tough times.
Grocery stores and discount dollar stores also do well. Consumers turn to less-costly groceries to replace visits to bar and grill establishments when times are tough. More people have been preparing meals at home the past few years, even for social gatherings. Smart purchases keep the wallet a little fatter, and food is a need, not a want. This applies equally to franchises, such as the Dollar Tree, that sell basic staples. This little giant has done so well, with a 12.5% annual growth rate, that it has begun selling groceries in new stores, such as butter, hot dogs, and pizzas, all for a dollar a piece. During this recession, Dollar Tree stores have been popping up on every corner within the regions it has a presence. A Dollar Tree re-sale would be the exact type of business for a possible turnaround.
There are hundreds of individual franchises, way too many to list for the scope of this article. More importantly, the key is the industry, assuming the buyer does the normal due diligence of any specific franchise, its location, and its brand reputation. If these fundamentals are properly dissected, the industries involving conservative decisions to purchase goods that save money might provide lucrative opportunities in franchise re-sales. Customers put off buying new cars, new clothes, and visit restaurants less frequently. They also hire accountants to save taxes, and they sell their homes to get out from under burdensome mortgages. Accounting and real estate franchises, the companies with solid brand reliability, also provide good re-sale buys.
Therefore, it is not just the individual franchise on re-sale to which the buyer must pay attention, but also the overall industry with which it belongs for overall success.
What experience is important when buying a franchise resale?
No two franchises are the same so it makes sense then that each franchisor looks for something different in a franchisee. And whilst experience can be relevant for some franchisors, the majority look for certain traits and characteristics rather than experience. The reason being that good franchisors will teach and train franchisees everything they need to know about being a successful franchisee in their network. This is why franchising is ideal for those looking for a career change and wanting to pursue an entirely different line of work.
Franchisors therefore don’t consider experience to be that important but instead focus on getting the right people for their franchisee. As mentioned there are some common traits and characteristics which make a franchisee successful, we have listed below some of these.
Successful franchisees are those who are 100% committed to making the franchise work and so they need to be motivated with a strong drive to achieve success. If a franchisee loses interest in their business, then it will be reflected in the success of the business. It is therefore evitable that a franchisee enjoys their work as they will be in this role for a long time and will be working long hours in the business. You therefore need to be enthusiastic for the product or service you are selling; the best sales people are those who truly believe in what they selling. You need to keep this in mind when looking at franchises of interest. There is no point in looking at those you think will make you the most money if you don’t like the actual work involved as it will only lead to you underperforming in the business and the business not reaching its full potential. So if you think McDonald’s will make rich but you hate the idea of working in a fast food restaurant then it is not the franchise for you.
Don’t be fooled into thinking that you can buy a franchise and then sit back and watch others run your business for you whilst the money rolls in! It does not work that way. A lot of the time you will be required to be hands-on especially at the start of your business venture. You will also be required to be undertake any task no matter how menial it may be. Once your business is more established and you are in a position to open another unit i.e. become a multi-unit franchise owner, then you may be able to step back and take a more management role in the running of the businesses.
Franchisors also look for those who learn fast and have the ability to transfer what they learn to others. This is especially important in a franchise that requires managing people as the franchisor will want someone who can pick up quickly how things are done and who is then able to train their staff adequately in the business operations; good staff equals a successful franchise.
A business can only become a franchise if it has systems and procedures that can be replicated. A successful franchisee is therefore someone who can follow these systems and operate the business the way the franchisor expects it to be run. Franchisors therefore tend to look for those who can follow rules and are not tempted to do their own thing!
As funny as it sounds, experience in an industry is not always beneficial to a franchisor. The reason being if you already have previous experience in a similar business then it may be difficult to teach you how to operate their franchise in the way they want you to run it as you may have conflicting ideas. Some franchisors will ask for experience, some will not but will focus more on the interest you have in the industry. For the same reason some franchisors look for those who do not have all the administrative and entrepreneurial skills necessary to start a business as they want to teach them how to do it their way. Franchisors believe that management skills, attention to customer service and sales skills are the most important qualifications when recruiting franchisees.
Do you want to be an owner operator or absentee owner?
Whether you should become an owner operator or an absentee owner of a franchise will depend on a number of variables. Some of these depend on the franchisor, some depend on the type of service or product you’ll offer, and some will depend on your personal preferences, financial position and overall goals. In addition, if you’re buying a resale, exactly how much you take a “hands-on” approach will depend largely on whom the seller has for a manager.
Approximately one quarter of franchisors require buyers to commit to a clause in the franchise agreement that precludes absentee ownership. This is a sizeable percentage of the approximate million franchise brands in the U.S., and a percentage that is growing.
However, that still leaves approximately 3,500 franchisors who do allow absentee ownership. The option to handle the franchise as a passive investment is definitely available for many good brands. But another consideration will be the service or product you’ll be offering. Some franchises require more hands-on than others. For example, if you buy a franchise with the need for a high level of expertise in that field or a license that requires a degree in medicine, law, or aeronautics, there’s a good chance that you’ll need to become an owner operator. If, on the other hand, you’re considering a burger joint, you’ll probably be fine hiring a good general manager (GM) who follows the franchisor’s standardized method of operation.
Regardless of the types of services or products offered by different franchises, the most important influence should be your personal preferences. Are you the type of person who would rather know exactly what is happening on an hour by hour basis guided by your own influence? Do you like to look in the customer’s face and shake hands as the owner, offering a personal touch to customer service? Or are you an investor who would rather delegate responsibility to a seasoned manager? Even if the latter choice is yours, know that there are some things you should handle personally during the establishment of managerial operations. For instance, initially you should learn about the key positions of the franchise and how to fulfill those duties attached to them. Only after an experienced team is in place is it safe to spend less and less time at the franchise.
Additionally, even as an absentee owner, you should perform periodic reviews to protect your investment. As an owner operator you would ensure that cash registers balance, that sales volumes are meeting or exceeding expectations, and that marketing strategies are being implemented. As an absentee owner, most of these responsibilities will be given to management. But this does not mean you shouldn’t pay attention to many of these areas. Your money will be at risk; thus, periodically reviewing these points is very important, and might call for a database that you can view electronically as frequently as you choose.
You must also consider the cost of operations for your franchise, and include the expense of hiring a GM to replace your contribution of time. If the expense for a GM significantly lowers your franchise profits, you may not have the capital to maintain his or her salary. This would almost certainly require you to become an owner operator.
Are you just an investor seeking a passive income or are you a type-A personality ready to make a career out of controlling your own operation? Are you buying a job or an investment like a stock or bond fund? Only you can answer this question to your own satisfaction.
Finally, if you’re purchasing a franchise re-sale, how much time you spend micro-managing will rest upon the seller’s prior practice. Was the seller an absentee owner or was the seller also the GM? If the seller has a good management team in place and is already profitable, his or her absence from daily operations will probably not matter very much. Conversely, if the seller was also the GM, then you’ll need to fulfill that role as an owner operator, at least until you can train someone to take over as GM.
If you buy the right franchise, hire the ideal employees in key positions, and have the capital requirements, a franchise re-sale is an ideal way to add to your passive income. Nonetheless, if you need to build and create and enjoy a career, then becoming an owner operator is probably a better choice to satisfy your goal to achieve personal success.
While franchise business ownership isn’t for everyone, those who choose to pursue a franchised business model choose to do so for numerous good reasons, one of which is most likely the support that the franchisor provides to each franchise owner. A very common question that I have been asked countless times is “what kind of support can/should I expect from my franchisor?” Unfortunately, there is no perfect answer to this question, as there are a number of factors involved, including size and maturity level (age) of the franchise concept. For the sake of this article, we will consider a more mature brand with 75 or more franchisees currently operating. Below I have listed the most common support areas (not necessarily in this order):
- Continuous training and educational opportunities (annual convention, workshops, online education, webinars, etc.)
- Corporate staff available to assist with technical, marketing, financial and other challenges and opportunities via phone with a quick response time (More mature concepts tend to have staff who can actually visit franchisees in the field occasionally)
- Strong internet website and “search engine optimization” (SEO)
- Local marketing and advertising assistance, including coop advertising for markets with multiple franchisees
- Coordination of PR and advertising programs and initiatives to promote the brand
- Franchisee performance monitoring and benchmarking systems
- Systems to allow franchisees to share best practices and ideas, solve problems, etc. (most franchisors have an internal website just for franchisees that accomplishes this)
- National account management (if applicable)
- Corporate purchasing cooperatives and/or approved suppliers
- Social media coordination and support (national and local level)
- Current operations manuals
- Awards and recognition
Don’t be surprised or disappointed if your franchisor does not offer all of these benefits. The key is to make sure that the franchisor is meeting the most immediate needs of its franchisees while also prioritizing appropriately to provide additional services and benefits as the organization grows.
Submitted by Charlie Kerr, Franchise Professional and in-house expert on franchise operations for franchiseresales.com
Can a failing franchise resale become profitable?
One of the most pressing questions of a buyer considering the purchase of a re-sale is, “Can I turn the failing franchise unit into a profitable venture?” The answer will depend on a number of case-specific factors, but usually a franchise with a good brand is unsuccessful because of the franchisee’s failures, rather than the brand or location.
This is supported by many sources of market research. For example, the Small Business Administration provides data showing that less than ten percent of all franchise units in the U.S. fail each year, compared to forty-five percent of independent small businesses. This hints that a failing franchise re-sale is likely an excellent opportunity for an energetic entrepreneur to turn a re-sale into a success story.
Unlike independent businesses, franchises allow the investor to go into business for himself or herself, but without “going it alone.” Particularly for a resale, the franchise is already up and running. The basic infrastructure is in place, with established vendors, employees, cash flow, and customers, with no start-up period.
However, this does not automatically mean a failing franchise can be turned around. The first order of business is to consult both a professional lease attorney, a local real estate broker, and to ask questions of other franchisees in the area. If other franchisees are turning a profit in the same brand, this might indicate bad management and an opportunity for a successful turn-around.
But there are some considerations to evaluate before presuming the failure has been caused by the seller franchisee. For instance, does the franchise location have a pool of customers living or working within an acceptable distance? How close or far away are other franchisees of the same brand? Are they eating away the sales revenues that would otherwise be available for a turnaround? Are franchisor or lease demands a cause for failure? What upgrades to signs or building designs are required? How costly?
These are the types of questions a prospective franchisee of a re-sale must ask to learn whether or not the failed franchise was caused by factors outside of direct management. Due diligence is an indispensable aspect of making any investment, including re-sales. Part of this due diligence will also involve research on the seller’s prior cash flow and marketing choices.
One of the primary causes of any business failure is inadequate cash flow. Did the seller utilize or have available financing? Was the seller plagued with low revenue volume or going through a price war with local competitors? Did he or she fail to institute proper cost management techniques, such as inventory controls? Was the cash flow suppressed by a failure to manage accounts receivable (payments owed by customers, if any)? Has the franchisee seller relied too heavily on one major client for revenues? Was he or she following the franchisor's proven system?
To answer these questions, a potential buyer might need to seek the advice of a mentor or business consultant. Other aids include mathematical software tools that help evaluate demographics and regional consumer traffic. There are also simple formulas, like inventory-turnover, accounts-receivable turnover, and fixed-asset turnover ratios that can help a potential buyer measure the seller’s prior management skills, or lack thereof:
- Inventory Turnover Ratio (ITR) = Cost of Goods Sold/Average Inventory
- Accounts Receivable Turnover Ratio (ARTR) = Total Credit Sales/Total Outstanding Accounts Due
- Fixed Asset Turnover Ratio (FATR) = Sales/ (Net) Fixed Assets
Before these tools can be helpful, the prospective buyer must first review the Franchise Disclosure Document (FDD) and ask the seller for data that’s not otherwise found in the FDD. These include how much revenue has flowed through the business in the past year, total annual fixed costs, and the average time inventories are stored. All three of the formulas are basic division problems. Once the buyer has obtained the necessary raw data and performed the division to provide quotients (ratios), then the buyer should compare those to benchmark ratios. Benchmarks can be obtained from experienced accountants or consultants in the same industry or might be provided by the franchisor. The key to these formulas is that the higher they are in comparison to the industry average, the better. If they are high, this might indicate that the seller’s failure was caused by other factors like location that are not easily fixed by a transfer to a new buyer. However, low ratios are an indication of poor cash flow management and might provide a lucrative opportunity for a turn-around success to profitability.
Either way, if a prospective buyer asks the types of questions presented above, does due diligence, and seeks the advice of other industry pros, the answers will likely guide the entrepreneur on how to proceed. Failing re-sales can offer a golden opportunity or a gloomy nightmare; it’s up to the buyer to get the answers for an informed decision.
The value of a franchise brand
During these uncertain economic times, the value of a good franchise brand matters because it offers security and familiarity with consumers and a higher return for investors. Many investors are unhappy with the small returns of passive investments (stocks, bonds, etc.). With the Fed forced to maintain low interest rates in the depressed economy, most bank- CD interest payments are not enough to cover for inflation. Not only has this caused individual stocks and mutual funds to become overpriced, but also has forced investors to reconsider passive investments altogether.
This has been a boon to entrepreneurial development, with small businesses comprising an ever-increasing share of the GDP in both America and Europe. This creates tremendous competition in the free market. Competition is good, but it also creates more risk for the investor who may be considering opening a small business.
For a number of reasons, franchises, and particularly franchise resales, offer the opportunity to lower that risk. A franchise that carries a solid brand value and that is already fully operational lowers the risk of uncertainty and the start-up costs associated with a brand new business.
Brand value is a component of economic goodwill, which is defined as the intangible advantages a franchise has over its competitors. These intangibles might include a positive reputation, a business network of associations, or even strategic locations. These all work to enhance and strengthen brand value, which in turn attaches a premium cost to buying the rights to operate a franchise.
Brand value is also comprised of a number of different factors. By breaking down brand value into its individual components, the potential investor of a franchise can better understand why and how a good brand value is worth a premium of lower risk.
Consumer Awareness: A good brand will carry a strong, favorable presence in the minds of consumers. They will recall and recognize the brand name easily. Good examples might include Coke, BMW, or Burger King. The general public is aware of these brands, the quality, the colors or features, or even the nostalgia attached to them from past associations.
Brand Association: Everyone attaches traits or features to people and places. These traits or attributes also become associated with businesses in the consumer’s mind. For instance, BMW is associated with quality engineering and affluent consumers, whereas Coke is so well known that many people call cola sodas of any type, a “coke,” while still recognizing the value attached to the real Coca-Cola brand.
Consumer Loyalty: Franchises with a good brand have earned that value by properly marketing their image over time. But ads are only effective in the long-term by strong follow through with quality, customer service, or value pricing. These attributes build customer loyalty. Customer loyalty means a consumer is likely to re-visit an established franchise and re-purchase goods and services. As Warren Buffet is renowned for saying, if a person is willing to cross the street to purchase a product, or pay a higher price for say Coca-Cola rather than generic cola, that is customer loyalty.
Such brand value in a franchise carries brand equity, the preference customers feel for a selected product or service amongst many similar brands. This preference means customers are more likely to pay a higher price or visit more consistently. This not only increases sales and profits in the long run, but also decreases risk to the investor in a tumultuous economy. A franchise with positive attributes of consumer awareness, association, and loyalty means strong consumer demand. Strong demand lessens the need to undersell competitors or rely solely on price competition, which helps to offset an inflationary environment. With these underlying factors of a franchise brand value, the investor can be comfortable paying a premium for the franchise name. Investing in brand value, followed by good management, marketing, and customer service means an investor can begin reversing the downward pressure of inflation and start reaping the rewards of a solid investment.
What is a turnaround franchise opportunity?
What is a turnaround opportunity? For all intents and purposes, in terms of small business…a turnaround opportunity is a small business that for a variety of reasons is no longer profitable. In today’s market place, there are many of these opportunities available. Through no fault of their own, many business owners were not able to navigate through the stormy economy over the last few years.
Even if they are “still alive” many business are in a position where the current owners do not see an avenue that will take them back to profitability. But this does not mean that this is the case for a new owner.
Often after struggling to right a failing business for several months or even years, some owners are ready to call it quits. They do not have the store of operating capital needed to keep things moving or make the necessary improvements that might be needed to turn the tides. Many are “burnt out” and just can’t face the grind any more. And others are likely looking in the mirror and realizing that they are not ideally suited for business ownership.
There is an advantage to buying a turnaround opportunity in franchise resale situation. As a buyer you can look at whether or not the seller has been really following the protocol and business model that the franchisor required. Often new franchisees will open their new franchise and realize that they were not cut out for the discipline and commitment to process that so many franchisors require. This alone can have such a negative impact on a franchised business that there is no real turning it around with the current owners unless they are willing to change their ways and follow the model.
This situation coupled with the challenging marketplace that has existed over the past few years has resulted in a high number of turn around opportunities in the franchise community. For a buyer that is ready to roll–up their sleeves and right the ship, the initial appeal, of course, is the chance to buy into a business for significantly less than it would cost if it were cash-flowing, but even more importantly for a fraction of what it would cost to open a brand new franchised business. Although this of course is not good news for the seller…it is the harsh reality.
When looking at a turnaround opportunity that is franchised you have several questions that you need to ask yourself:
- Do you believe you have what it takes to jump into a negative situation and work through it each day?
- Do you have access to sufficient operating capital to make a difference and turn it into a money-maker?
- Do you have a passion for the industry niche of the brand?
- Do you have the business background that is commensurate to the type of franchise that you’re looking at?
If the answer is yes to all of these questions then the only other thing left to do is your due diligence and research on the opportunity itself.
Creating a business plan
If you’ve decided to buy a franchise resale, you might think that creating a business plan is unnecessary. To the contrary, a business plan will still be required by both the franchisor and any lenders involved in the resale. It will also serve to guide your decisions throughout your course of business as a franchisee and help you better understand the capital needed before reaching profitability. All of this is accomplished by following the plans with some commonly accepted features:
- Business Description and Mission Statement
- Marketing Plan
- Financial Projections
- Capital Requirements
This is basically a cover sheet with the name of the franchise and contact information. It should also have a short statement highlighting the buyer’s purpose for becoming a franchisee, and a table of contents.
Business Description and Mission Statement:
This section will likely contain information from the franchisor’s company brochure, mixed with your own view for going into business. It should include a detailed description, the standardized method of operation, the product or service provided, the competition, the target market, and any challenges faced by the seller and how the buyer intends to overcome them. It should be written in a summarized form, preferably no longer than two pages long, followed by a mission statement. The mission statement is generally one or two sentences that helps to state your purpose for going into business in a way that motivates management and employees to actively participate in that mission.
The managerial section should list all of the upper-level managers and other key personnel. For resales, new franchisees commonly aid the transition of ownership by retaining the personnel in place, at least until the first month or two after closing. If this is not the case, then this section of the business plan should include the resumes of new personnel, showing backgrounds and highlighting experiences that can increase the chances for managerial success.
How do you plan on attracting customers to your location or on convincing them to buy your product or service? This section should provide more details relating to your target market, demographics, advertising, and how you will distribute and sell your offering. It should include the marketing mix of promotions, product, and location. As previously mentioned, much of this information may be provided by your franchisor upon request.
This area is much easier for the buyer of a resale than it is for either a new franchise or an independent start up. With a financial history, you can more easily extrapolate them to projections for the future two to three years down the road than if everything were based on hazy guesses. Develop projections in an income statement, a cash-flow statement, and an overall balance sheet. They should be conservative anticipations, and you should always remember the following statement: most businesses fail because of improper deployment of capital. Be careful not to stray too far from the best performance of that location within the past few years. No matter how much better than the seller you believe your skills are at managing, you still don’t want to undercut your success by overly optimistic projections.
Preparing an application for a loan is not the only reason to create this section. Even if you’re providing your own financing the franchisor may require you to show where that financing originates. The section will include an evaluation of start-up costs, including the franchise fee, leasing cost, original supplies and inventories, in addition to employee pay and your own salary, if you will need one. You should show financing needs up until the future breakeven point, which will necessarily include sufficient working capital prior to that point. Be careful to add a hefty reserve for initial marketing costs above and beyond the franchisor’s contribution, including operating losses inherent to initial competitive pricing strategies or other steep promotions or discounts.
While creating your business plan, understand that it is always a work in progress. The first draft will rarely resemble the final one, because the process itself creates questions that must be answered throughout the evaluative steps. Luckily, since you’re buying a resale, much of the information will be readily available from the franchisor’s website, brochure, and FDD. Writing the business plan will be the first opportunity to begin developing a working relationship with the franchisor. You won’t be creating a static piece of paper, but will be using the phone, texts, and e-mails to discuss the plan with franchisor personnel and the seller. These people either have the information or can guide you to discover the answers you’ll be required to provide as the plan alters and reaches a conclusion.
Finally, your business plan will be aided by the information you get during your initial franchisee training. Upon completion of that training, your plan should be fully prepared and ready for submission. Nevertheless, be careful not to let your written plan fall into the lazy trap of a dusty file cabinet. Update it when unexpected market changes occur or whenever you learn more details of how to proceed. Indeed, the marketing section will never be complete, because new promotions and opportunities to sell yourself and your product will continuously present themselves.
As long as you stay proactive and flexibly adjust to new developments, your business plan will provide the guidance well over the investment of time you place into it. With a well-written map of how to proceed, you’re already moving toward success and prosperity. You’ll definitely have the advantage over those franchisees who don’t bother to take the extra time because they think that only a cookie-cutter plan is necessary for a resale.
The importance of location
Finding a good location to conduct business is a task that all potential franchisees must consider. This is true whether buying an existing franchise up for re-sale, commonly called a transfer, or buying and constructing a brand new franchise building. There are a few minor differences of locale between the two choices, so for clarity we will evaluate the considerations of location that apply to all prospective franchise buyers first, followed by a few points special to those opting for a resale.
To begin, let’s get right in and deal with the one area that causes buyers’ eyes to get a little crossed: the lease agreement. There is no need to worry. The key is information and that information is gained by asking the right questions to the right people. Who are those people? The key players involved are:
- A good lease attorney (to represent you)
- The Franchisor
- A local commercial real estate broker
- Any landlord involved
Once you have an idea of who these people are, then it’s time to start asking some questions or have your attorney ask them. For instance, there are many economics of the location you should consider. What will the rent be? Are there clauses of the lease that equal large expenses, such as payments for common- area maintenance like shopping-center parking lots? Is there landlord insurance? Are the real estate taxes reasonable for that area?
Make sure your real estate broker has your interests in mind. The broker should provide you with information on what historical and economical prices and expectations are considered reasonable BEFORE signing any lease agreement. Your attorney should also be proactive in trying to obtain rent reductions in the lease agreement for any tenant improvements made to the property, if any allowances are available. There might also be similar considerations that the franchisor includes as part of the lease agreement. Check to make sure all expectations are spelled out clearly and are reasonable before signing. Commonly, the franchisor will provide support materials, such as “use” clauses, or other language that needs to be included in the lease. In some instances, the franchisor will provide lease contracts for you to propose to the landlord. Regardless of how the lease is proposed or by whom it is prepared, do not sign it on impulse or sign it without having it reviewed by an experienced lease attorney.
As a prospective buyer, you must also perform due diligence outside of what’s included in the lease agreement, especially regarding location-specific factors. But you’re not the first person prospecting to purchase a franchise. Many people are already within the same franchise brand that you’re considering. Ask them questions. Find out which locations do the best business without disclosing which one you’re considering. Get their advice and see if their inside knowledge surpasses what the franchisor volunteers. Conducting research like this will enable you to get unbiased information and make an educated decision as to your potential location.
Human input is important, but with technology you’re not nearly as limited as entrepreneurs of the past. Tools are available. There are sophisticated programs, such as location analyses, that make evaluations of different locations very informative. Ask the franchisor’s personnel about these programs and whether or not they know where to access them. These tools can help you learn the demographics about local consumers, their ages, their spending habits, traffic patterns, and even data about competitors within a geographical range of your location.
Another aspect that applies to new construction of a franchise, but not to a re-sale, is zoning. Make sure to check with your city or county zoning authority before you commit to building. And even when purchasing a pre-existing franchise building, zoning might be something to question in case you wish to upgrade or expand the building or parking areas in the future. This would be important, for example, if the area were to expect a new incorporation of public transportation, increasing your customer foot traffic, or if the county were to expand a highway, increasing vehicle demands. Check with zoning and also with your local chamber of commerce.
Competition is another important factor of location. Some franchisors do not provide exclusive territorial rights, meaning that some franchisees find themselves directly down the street from the same-brand franchise facing revenue-depleting cannibalization. Not good! Make sure the franchisor provides a comfortable territorial zone of exclusivity for your franchise before signing any agreement. Most will agree to provide territorial rights.
However, contrary to popular belief, competition from other franchisors is a good thing. Have you ever noticed that burger joints commonly locate close to big competitors? Sometimes it’s caused by zoning, but more frequently the franchisors do this to increase sales. Research has shown that when franchisors build close to large competitors they do more business because those competitors have already spent advertising dollars to bring consumers to that store, and therefore to that area. Additionally, those competitors chose their locations based on demographics, an advantage the new franchisee can use with less R & D expense than would otherwise be required.
Other topics of location should be of concern to franchisees. Does the area have seasonal employee pools, or are they consistently available? Is the area dependent on seasonal business or tourism? Will insurance be high because of a high crime area? If competitors are located nearby, are you confident that your business model can effectively compete against them for a profit? Can suppliers easily access your business to make deliveries? Is lighting and parking convenient for customers if you conduct business at night? How far away do the customers (with the necessary demographic profiles) reside in ratio to you and your competitors’ locations?
These are considerations that all prospective buyers of a franchise need to know. But there are also a few that the buyer of a pre-existing franchise needs to consider. For example, is the current franchise agreement transferrable on a re-sale? Are there any hidden fees attached to the transfer? What prior requirements were attached by the landlord? If any, how costly will they be?
Especially important, ask the franchisor if any upgrades will be required. Sometimes the franchisor requires upgrades to signs, colors, or other building design changes that can become particularly expensive. Occasionally, a franchisee has failed to perform these upgrades and can be required to foot the bill before selling or they can be part of final negotiations of purchase price between the buyer and the seller.
Consequently, a prospective buyer of a franchise resale must not only ask the ordinary questions of location, but also the case specific questions related to a transfer of ownership. As long as the motto of “location, location, location” is coupled with “question, question, question,” followed by good answers, buying a piece of the franchise pie should be sweet with profitable rewards.
What is a lease assignment?
During a resale, a lease can be re-assigned from one franchisee to another to save the time and expense of developing a new lease agreement. This is decided by the landlord and commonly agreed upon by both the franchisor and the franchisee.
In some cases the lessor will require a new lease. Usually this occurs because the original lease has only a short time remaining before expiration. In other cases the lessor might believe a new lease agreement would provide more security or rental income than the prior franchisee provided.
What is a Discovery Day?
A Discovery Day is somewhat of a celebration for the potential franchisee to attend. It is usually a day for the franchisee to get acquainted with management members and is held at the franchisor’s corporate office. It also signals that the franchisor is serious about pursuing the candidate for team membership. Usually a person is not invited unless franchise development reps have screened the applicant’s credit history and background and have pre-approved the candidate for the franchise.
Assess the franchisor
Whether you buying a new franchise or a franchise resale you need to make sure that you fully assess each franchise business to gain a better insight into the business and the franchisor.
Below is a list of questions you could ask the franchisor or a representative. This is not an exhaustive list, and a lot of it will be covered in the FDD. It will encourage you to think of additional questions of your own to ask, allowing you to build a better understanding of the business.
- When was the business established? — only a successful business can be franchised. So before a business can even be considered for franchising it needs to have a good track record of being run as a business on its own merit. In no circumstances should the franchise have been operating the same length of time as the business.
- How long has the franchise been established? — all franchises have to start somewhere and so there is nothing wrong in principle with buying a new franchise. You do need to be aware though that the risk will be greater as the business will not have an established track record, but the franchise cost should be less than other similar, but more established businesses. You therefore need to weigh up the pros and cons of this if considering buying a new franchise. If a franchise is fairly new it will probably have a pilot franchise and maybe one or two other franchisees. If however the business has only been running for a short period of time but has an established network, then this is not good as the network is growing too fast for the franchisor to support it. This franchisor may be looking for quick cash rather than establishing a solid business with future potential.
- What assistance did they have when setting up the franchise? - You want to be reassured that the company was set up properly using the right expertise. E.g. did they use a franchise consultant, franchise attorney, accountant. It is imperative that the experts used are actual franchise experts with a history of working with franchises.
- Did they run a pilot franchise? — all franchises should initially test their systems and operations by running a pilot franchise for around 9 - 12 months. Even if the franchisor has run a very successful business for a number of years, they still need to run a pilot to test that their manuals, training and infrastructure can be successfully replicated in a different location. Any issues unearthed will need to be dealt with and tested again. If the franchisor has not run a pilot then no one has tested the business as a franchise and so it could fail.
- What is the financial history of the business? — you need to find out if the company has ever been declared bankrupt. Also look at their company history to identify how many companies they have run, if any have failed, then why and is the business profitable?
- What is the company director’s background? — what is the past working experience of the directors i.e .what were they doing before they got into franchising? Have they got previous experience in franchising? And why did they get into franchising?
- What is involved in the day-to-day running of the franchise? — to make a success out of a business you need to enjoy the work. There is no point getting into something just because you think it may make you money because no matter how good the franchise is, if you don’t like the type of work involved, you will not make a success out of it. Find out what is involved in the day to day running of the business. Ask for an example of a typical day/week in the life of a franchisee in order to identify if it would be something you enjoyed doing.
- What is the total cost of the franchise? —franchisors tend to not fully disclose full financial information on advertisements. Sometimes the franchisee fee is just given but this can be misleading as it does not give a true reflection of the cost of the franchise. You need to make sure that you identify any hidden costs. Ask for a full breakdown of the cost of the franchise i.e. what would it cost you if you wanted to open their franchise tomorrow. Also find out what ongoing fees there are. You need to be comfortable with these outgoings, knowing them all upfront will help you to understand what you will be paying and why, which makes for a better relationship with the franchisor.
- How long is the term of the franchise? — you need to identify if you can renew the franchise at the end of the franchise term.
- What is included in the operations manual? — a good franchisor should provide you with a comprehensive operations manual that covers all aspects of running their business. It should support and reinforce the training being offered.
- What is their recruitment process? — find out what stages you need to go through before you are granted a franchise. Also ask at what stage you would be able to get a copy of their Franchise Disclosure Document (FDD).
- What training are you given? — what training are you given prior to opening the franchise, as well as at the launch and ongoing? Is training provided to staff? How does the company react to new products or systems, is training for these given? What ongoing support should you expect to receive? Do you have a dedicated support person/team?
- What national marketing do they undertake? — what marketing and promotions do they undertake? How successful has past marketing been? What marketing do they have planned for the future? How is it funded i.e. is a marketing fee included in ongoing fees? Do you receive any help with local marketing?
- How are territories assigned? — what is the size of the territory? What exclusivity are you offered?
- What happens if you want to sell the business? — what are their terms for selling the business? Do they help you sell it?
- Do they have an example of a franchisee in a similar demographic area to where you are looking? — it is all well and good telling you about someone who is running a very successful franchise in Florida when you are in Texas as it could be down to geographical location. Remember what may work well in one city or town may not necessarily be successful elsewhere. You want to know about someone operating in a demographic area similar to the one you may be operating in. Do they have any examples?
- How successful is the franchise? - How many franchisees do they currently have? How successful are they? Do they have international presence? If so, where and how successful are these franchisees? Have any franchisees failed in the past 12 months? If so, why? How many franchises have they opened in the past year? How many applicants do they reject and what are the main reasons for this? What are their plans for the business for the next 5 years?
- What are the current and future market trends for their product/service? — who are the main competitors of the business? What are their USPs? How do they compare like for like? How has the market been in the past 12 months? Are threats or equally any opportunities? Is there any new legislation coming in that could affect the business? If so, how do they plan to deal with this?
- What is the structure of the company? - How big is their Head Office? What functions does head office cover? What support do they have there for franchisees?
- Are they a member of the International Franchise Association? — If not, why not?