Buy a Business with Franchising

18/09/2018 18:00 | Start a business

If youíre thinking of buying a business, you should also consider entering the franchise system. Starting your own business in the franchise sector allows you to make use of your franchisorís established reputation, as well as their experience and expertise. However, there are several things you need to do before you commit to a franchise agreement.

How to buy a business

1. Ensure you understand the franchise model

Before you even contemplate looking at specific franchises, itís necessary to make sure that you fully understand what the franchise system is and how it operates. The franchise model encompasses a wide range of businesses and organisational structures, as well as many different types of franchise agreement. There's also a great deal of industry-specific jargon to get to grips with. If you're struggling with any of the terminology used, take a look at one of our glossary articles. There, we walk you through all of the essential vocabulary you'll need to make it in the franchising game.

2. Do your research and see whatís out there

Once you've got a better understanding of the franchise system as a whole, it's time to look more specifically at franchises. The best way to do this is to utilise a franchise consultant or comparison site. They'll usually list all of the available franchises, show you other franchises in a particular industry, and make recommendations based on your search criteria. It's important to keep track of which franchises are actively searching for new franchisees and which have halted recruitment or are only offering resales, as this could have a significant impact on your decision.

3. Surround yourself with experts

An entrepreneur is only ever as good as the advice they receive. No businessperson has all the skills necessary to run a business on their own successfully. Franchises are sophisticated legal and financial entities and depend on good advice if they're to run smoothly and grow into a profitable, long-term business operation. Consequently, you'll need to make sure you have access to talented legal and financial advisors who have experience in the franchise sector.

4. Work out what youíre best suited to

Itís also important to work out what type of franchise youíre best suited to. Thereís little point starting a business that youíre not qualified or capable of running. Likewise, if youíre not passionate about the work, itís going to be hard to motivate yourself in the long run. Take a little time to consider what your strengths and weaknesses are and what type of work you enjoy. The findings should inform your decisions as you progress through the franchise set-up process.

5. Narrow down your choices

As you begin to look at specific franchises, itís a good idea to think about ways you can narrow your options and reduce the number of franchises youíre choosing between. This can be achieved in different ways. First and foremost, ensure you know what financial resources you have at your disposal. Then set a budget and stick to it. It's also of benefit to think about what type of working arrangements you would prefer. Do you want a part-time or full-time role? Do you want to work on-site or from home?

6. Speak to your future franchisor

Once youíve established that youíre really interested in a franchise opportunity, itís a good idea to contact the franchisor and talk to them about becoming a franchisee. To buy a business in the franchise sector, you need to know that you're going to be able to work closely with your franchisor, so make sure that you feel as though you're able to communicate openly and honestly with them from the start.

7. Speak to existing franchisees

As well as speaking to the franchisor, you'll need to talk to existing franchisees. Not only will they be able to confirm or deny what the franchisor told you in your previous discussions (about the profitability of the franchise, the amount of support they actually receive etc.), they'll also be able to tell you what life is like as a franchisee. This can be incredibly valuable information and should give you a better idea of whether you're suited to the franchisee role.

8. Prepare your business plan

All franchisees need to draft a business plan before they sign the franchise agreement. The business plan does many things. First and foremost, it sets out your plans for the first few years of business and gives you targets to aim for. Second, it's required to complete the finance application process. Your franchisor will often help you to produce your business plan and, if they donít immediately play an active part in the process, you can always go to them with questions.

9. Understand what youíre getting from the arrangement

When you sign the franchise agreement, that's it Ė you've legally committed to the franchise, and youíre locked in. Consequently, you need to make sure that youíre 100% sure of your decision and that you fully understand what the franchise agreement entitles you to and what it requires of you. Any franchisor that wonít reveal to you these details should be avoided at all costs.

10. Apply for finance

Finally, you'll need to apply for funding with one of the franchisor's approved partners or another major lender. Typically, franchisees can borrow anywhere up to around 70% of the total investment required from their lender. However, this does depend on your financial history, business plan, and suitability as a franchise candidate. Most franchisors will guide you through this process and provide you with all the assistance you need to apply for finance successfully.

Conclusion

There's a lot to consider when first starting a new franchise unit. Prospective franchisees need to carry out enormous amounts of research and ensure that everything a franchisor or lender tells them is substantiated independently. Franchisees cannot afford to take their future business partners on their word and need to be savvy about what type of arrangement they sign.

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