Franchises

What should I look for during my franchise search?

min read
Opinions expressed by Entrepreneur contributors are their own.
Resales can be great but never forget the adage, "Let the buyer beware!"

As part of your due diligence, one of the most important bits of information you'll want to make sure you know is why the present owner has decided to sell.

It's a safe bet that this person knows their business quite well. If everything is rosy, why let it go? On the other hand, if they see storm clouds on the horizon, it may be the perfect time to sell because a potential buyer probably won't see the approaching storm.

It may be that the existing owner is ready to retire and everything is fine with the business but remember that most people don't put a wonderful and growing business up for sale.

When you evaluate the franchise numbers and historical performance, look for trends--especially any downward trend. Spend a lot of time figuring out why any trend is going the wrong way and be very careful to discount any offered price by an amount that gives you lots of room for things to get worse.

One of the problems with tough times in a business (like our current recession) is that you just don't know how long they will last or how low things may go.

On the plus side, buying an existing business can be great because you get immediate positive cash. In a new startup, you have to work for a while (sometimes quite a while) before you can start taking money out of the business. In a good resale, you should be able to do this immediately.

As a final note of warning, it is almost always a mistake to buy a resale that is losing money. The safest approach by far is to pay a premium for a business that is doing well and then try to make it even better.

More from Entrepreneur

Grow Your Business at Entrepreneur LIVE! Join us on Nov. 16 in Brooklyn, NY, to learn from legends like Danica Patrick and Maria Sharapova, pitch our editors, meet with investors, and potentially walk away with funding!
Register here

One-on-one online sessions with our experts can help you start a business, grow your business, build your brand, fundraise and more.
Book Your Session

In as little as seven months, the Entrepreneur Authors program will turn your ideas and expertise into a professionally presented book.
Apply Now

Latest on Entrepreneur

My Queue

There are no Videos in your queue.

Click on the Add to next to any video to save to your queue.

There are no Articles in your queue.

Click on the Add to next to any article to save to your queue.

There are no Podcasts in your queue.

Click on the Add to next to any podcast episode to save to your queue.

You're not following any authors.

Click the Follow button on any author page to keep up with the latest content from your favorite authors.