Franchise Buying Guide

Buying a Previously Owned Franchise

Words of Wisdom
Presented by Guidant Financial
Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

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.

« Previous 1 Page 2
Loading the player ...

Tim Ferriss on Mastering Any Skill

Ads by Google

Share Your Thoughts

Connect with Entrepreneur

Most Shared Stories