The Ins and Outs of Buying an Established Franchise

While most entrepreneurs buy and build a franchise from the ground up, some choose to invest in a franchise that is already established. Is there a difference? There certainly is and familiarizing yourself with the ins and outs of buying an established franchise is essential before making such a substantial decision.

Franchisee vs. Franchisor

The franchisor is the top of the chain. Buying directly from a franchisor will mean a brand new business. A franchisee owns and operates a branch or franchise interest. While a franchisor will still be involved to approve the purchase, what follows is a great deal more complicated.

Existing businesses have operational histories, which may either be good or bad, and may be revealed or remain hidden. Before making the purchase, it would behoove you to look into the previous owner’s motive to sell, the merits of the business opportunity itself and the franchise system itself.

A franchisee should have certain financial documents based on actual performance and its reputation within the community, as well as with the franchisor and among other franchisees. Basically, an established franchisee should be able to provide information that will help your decision, whereas a new franchise would come with no such advantage. Just be aware that a franchisee may choose to withhold information, such as its reason for wanting to sell.

Developing the Business

Buying an established franchise means certain key factors are already set. This can be a good thing or a bad thing. For one thing, your location is already set. Any market that exists may already have been developed or destroyed. Be sure to ask if any equipment upgrades or if any remodeling will be required by the franchisor.

If your dream is to build your business from the ground up, building up to a grand opening a year or more down the line is clearly not the choice you should make. When those doors open, your client base, along with a list of vendors and any necessary processes, should already be active.

Staffing

One more pre-existing component must be considered when buying an established franchise, your staff. Just because they exist does not mean they must stay. You do get to decide whether to keep or hire your own management and employees. A franchisee will sometimes ask you to retain staff or even write this into the contract. Be sure to thoroughly vet and train whoever ends up working for you.

If you choose to buy from a previous owner, there will be a contract. You may be required to assume the contract, finishing it out, giving you less time to operate the business before re-signing a new contract. However, most of the time you will be required to sign the newest version of the franchise agreement so that you will not benefit from the seller franchisee's existing contract. If you wish to benefit from your investment, seek the legal counsel of an experienced business law attorney when negotiating the purchase of a franchise or franchise interest. Please call this office and make an appointment if you have any questions.