Buying a Previously Owned Franchise
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A lot of people like buying used . . . but buying a used franchise? Don't look surprised. Experts estimate that about 10 to 15 percent of new franchise sales may actually be buyouts of existing locations, although those calculations could vary widely based on the size and age of the system.
Charles Bockwith is one franchisee who chose the existing-franchise route. After being laid off from his sales job two years ago, Bockwith and his wife, Claire, both 44, took note of a friend's success in employee leasing and began looking at franchises in the staffing industry. This January, they became owners of an existing Express Personnel Serviceslocation in Pensacola, Florida.
Franchise Zone talked to Bockwith about what it was like taking on an up-and-running franchise.
Franchise Zone: How did you find out this Express location was available?
Charles Bockwith: By just snooping around, really. I was actually looking at one of Express' competitors, and I was talking to a franchisee who was somewhat dissatisfied and suggested I call the competition, which I did. That's when Express corporate told me this [existing] office was available.
When you were looking at franchises, did you ever think about starting from scratch?
I was considering a start-up initially. It went down to the wire. I had both franchise agreements on my desk at the same time for my signature.
Why did you decide to go with this one?
It just seemed to me that by buying an existing business, I'd be able to get to profitability quicker. And you just don't have all the pains you would have in a start-up-everything from trying to find your location to your interior remodeling to developing a client base from zero.
Did you research differently on this one than you did with the start-up?
Yeah, I had to get into some valuation calculations, and I looked at historical performance, which gave me more of a true picture of what I was getting into. I wouldn't have had that with a complete start-up. But I did have to figure out a value and what would be fair as best as I could, and I had to come up with dollars to do that from scratch. In a start-up, those dollars would be spent over a longer period of time.
Did you observe the store in operation?
I did. I observed this one as well as some other offices from the same franchise. I had some concerns-it's a really scary thing to go into a business you don't have a lot of experience in. Also, at the time I was buying, it wasn't very clear as to what was going on in the economy. [The economic downturn] also weighed a bit on my decision to steer toward an existing [franchise] vs. a start-up-working with an existing client base just looked like the better route.
What about the current employees?
That was part of the negotiation. This office was actually owned by an absentee owner, so he had employees in place here, and that was part of the price of the deal. We took an amount of money off the original purchase price, in kind of a bonus structure, to ensure that the existing people would want to stay for a period of three months. We wanted to make sure the torch was passed in as smooth a way as possible. Actually, I only have one of those three employees at this time.
Did you have any problems retaining customers?
We did have some downturn in business, but a lot of that is due to the economy, at least here in Pensacola. I wouldn't say any loss of business was attributable to the business transition itself.
Words of Wisdom
What advice would you give to other franchisees who have the opportunity to buy an existing franchise?
I would be absolutely sure of the reputation of that individual franchise. I would talk to some of their customers and other franchisees within that organization who have bought existing businesses to understand what the pitfalls are.
I would do my homework on pricing [and] how to accurately value the business. Some things to consider, too, are existing lease agreements that have to be assumed, desirability of your office location, the possibilities of getting out of that lease, costs, that type of thing.
I would also look at business trends in that particular industry. We ended up buying in the midst of an economic slowdown, so the volume isn't as great now as it was this time last year, even with the addition of new customers.
Now that you've read one franchisee's take on the subject, learn about how to buy your own Secondhand Store.
Whether it's a start-up or existing [location], I would talk to a minimum of 10 franchisees, and I would choose the ones [the franchisor] probably doesn't want you to talk to. Usually they'll give you a list, but they're required on the franchise agreement to list everybody-that's what I used. I just went through at random and started calling, I didn't call the ones they suggested I call-I called the ones that they didn't tell me to call, and I found out a lot.
What kind of information should you get from existing franchisees?
There are thousands of questions to ask: How long did it take to break even? What's your relationship with the franchisor? What problems have you had? Is it a positive environment? Have you been satisfied with the support you get from the organization? The question I asked that got a lot of different answers was, If you had the chance to do this again, knowing what you know today, would you do it again? I had some people tell me no.
If you can buy an existing [unit], be sure to find out why the owner is selling-if it's retirement or physical disability or if there are some ulterior motives. You really have to dig in to find out. Overall, between buying an existing location and a start-up, your goals should be achieved more quickly by buying existing.
How do you find out the franchisee's reasons for selling?
You have to ask them. Then, talk to other franchisees. They seem to be a pretty close-knit group. Everybody knows who everybody is to some degree, and you can get a good understanding or why the owner is selling over and above what the individual says. The other thing I would do is visit at least two of those 10 franchises I called and spend a day or two in them.
To compare how they operate, things like that?
To compare how they operate, but also to see what it is you're really getting into as best you can. It takes a while to figure out what you're really doing, but if you spend a couple of days in different offices and kind of act like a fly on the wall, you get an understanding of the day-to-day operations that will be a large part of your life. It does open your eyes to some things you didn't consider.
If you were going to open another franchise, would you want to do a start-up or an existing location?
That's a hard question, because I haven't done both. If I expanded to another city close to here, it would most likely be a start-up, just out of necessity. But if I had a choice, I'd probably buy an existing. If all the factors are positive in both cases, an existing location would be more desirable.