How to assess a franchise?
How to assess a franchise?
- How much does it cost?
- What do you get by way of training, equipment, supplies, is a must to contact customers, etc., for this fee?
- What is the ongoing support - advertising, marketing accounting, product, helpline, etc.?
- What are the income projections?
The information pack should include general information about the franchisor, including a general history and how long it has been in business, as well as the number of franchisees currently in the network. It should also include details of its accountants, solicitors and bankers.
There should also be a detailed description about how the franchisees work on a day-to-day basis, which will give you an idea as to whether you will enjoy it.
The only way to assess whether a franchise is value for money is
to check it against the other franchises in the same business. It will also be a question of whether you feel the financial rewards adequately reflect the effort and money invested.
If you like the idea and feel it is worth taking further, then you will need to arrange a meeting to begin the process of checking it all out.
Checking it out
The information pack will probably look very impressive.
The principles in franchising are fine for those people they suit, but beware. Quite frankly, whilst there are many good ones, a lot of franchises are a waste of money.
These are some of the steps you should take before you commit to proceed:
Talk to the competition
Even if you have decided that one company looks much better than the others, it is worthwhile having at least a phone call, if not a meeting, with a couple of others before the meeting with the favourite. Ask them why their opportunity is better than the one you like. You can then tackle your first choice about the issues they bring up to see if they can satisfy you. If not, perhaps you haven't selected the right one!
Check the income projections in detail
Even if you have never looked at business projections before don't be afraid to look into the figures. Preparing business projections is largely down to common sense. Go through the income and expense lines, one by one, to understand what assumptions they have used in arriving at the figures, and consider whether they sound reasonable to you. Obviously every business will be different, but let's take an example to demonstrate in general how to approach the assessment of the projections. The example is not based on any detailed knowledge of the business in question, but is intended simply to demonstrate the approach.
Free of charge you can do a search on the company name or number (by law these must appear on the official notepaper of the business), and this will show the date the company was formed, and whether the accounts and annual return are up-to-date. For a small fee, you can download the latest annual accounts. This will provide a check on how well established they are, and how financially sound.
Choose a good solicitor
Most franchisors will not vary their standard franchise agreement. This is quite reasonable given that they cannot have different franchisees on different terms. However, you should have a specialist solicitor check out the agreement you are being asked to sign, so that he can at least explain it to you so you know exactly what you are letting yourself in for. If the agreement is unreasonable, he will advise you.
Franchises are a specialised area, and you should find a solicitor with appropriate expertise.
Buying an established franchise business
When you buy an established franchise business you will need to follow all the steps described in the following chapters for assessing how much you can afford to spend, assessing the business and calculating what you think the business is worth. However, because it is a franchise there are extra factors to consider:
Check out how well the franchise works
You will need to carry out all the steps covered earlier for checking out the franchisor and how well the franchise works.
You should be given profit & loss account figures for a number of years (at least two preferably) which, if reliable, will show you how profitable the business has been. Hopefully a large part of the risk has been taken away by the fact that the business has been established and proved to have made money. However, you will still need to satisfy yourself that the franchisor/franchisee relationships are good, and the support provided adequate, because you are new to the business and will need support at least as much as the vendor did when he started. You will need more support in a way, because the business is already up and running, so there is no gentle early build-up. You will be expected to go on the training course, and will need that to be good, just as much as the vendor did.
The vendor is not going to tell you he is selling because he is fed up with the franchisor, or with working hours twice as long as he had been told, so you need to speak with other franchisees in just the same way as you would if you were starting a new franchise outlet.
Check the value
When you buy a new franchise from the franchisor, the fee is fixed and you take it or leave it. However, when you buy an established business the vendor will expect an enhanced price based on the proven profitability of the business and the goodwill created thereby. Obviously there will be scope for negotiation, and you will need to satisfy yourself that you are paying a fair price. The difference compared to a non-franchise business is the fees payable to the franchisor. The franchisor will expect to approve you as the new owner, and will normally charge some or all of the following fees:
• An administration fee for checking you out.
• A training fee for your training course.
• A legal fee for entering into a new franchise agreement with you.
In my view these fees, with the possible exception of the legal fee, should be paid by the vendor, or deducted from the agreed sale price.
Negotiating the deal
In addition to signing the franchise agreement with the franchisor, there will be a sale/purchase agreement with the vendor. You may wish to negotiate additional support from the vendor, and other terms.
How to assess a franchise - To learn more about this author, visit Timur Sultanov's Website.
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Issues you are looking at are:
- How much does it cost?
- What do you get by way of training, equipment, supplies, is a must to contact customers, etc., for this fee?
- What is the ongoing support - advertising, marketing accounting, product, helpline, etc.?
- What are the income projections?
The information pack should include general information about the franchisor, including a general history and how long it has been in business, as well as the number of franchisees currently in the network. It should also include details of its accountants, solicitors and bankers.
There should also be a detailed description about how the franchisees work on a day-to-day basis, which will give you an idea as to whether you will enjoy it.
The only way to assess whether a franchise is value for money is
to check it against the other franchises in the same business. It will also be a question of whether you feel the financial rewards adequately reflect the effort and money invested.
If you like the idea and feel it is worth taking further, then you will need to arrange a meeting to begin the process of checking it all out.
Checking it out
The information pack will probably look very impressive.
The principles in franchising are fine for those people they suit, but beware. Quite frankly, whilst there are many good ones, a lot of franchises are a waste of money.
These are some of the steps you should take before you commit to proceed:
Talk to the competition
Even if you have decided that one company looks much better than the others, it is worthwhile having at least a phone call, if not a meeting, with a couple of others before the meeting with the favourite. Ask them why their opportunity is better than the one you like. You can then tackle your first choice about the issues they bring up to see if they can satisfy you. If not, perhaps you haven't selected the right one!
Check the income projections in detail
Even if you have never looked at business projections before don't be afraid to look into the figures. Preparing business projections is largely down to common sense. Go through the income and expense lines, one by one, to understand what assumptions they have used in arriving at the figures, and consider whether they sound reasonable to you. Obviously every business will be different, but let's take an example to demonstrate in general how to approach the assessment of the projections. The example is not based on any detailed knowledge of the business in question, but is intended simply to demonstrate the approach.
Free of charge you can do a search on the company name or number (by law these must appear on the official notepaper of the business), and this will show the date the company was formed, and whether the accounts and annual return are up-to-date. For a small fee, you can download the latest annual accounts. This will provide a check on how well established they are, and how financially sound.
Choose a good solicitor
Most franchisors will not vary their standard franchise agreement. This is quite reasonable given that they cannot have different franchisees on different terms. However, you should have a specialist solicitor check out the agreement you are being asked to sign, so that he can at least explain it to you so you know exactly what you are letting yourself in for. If the agreement is unreasonable, he will advise you.
Franchises are a specialised area, and you should find a solicitor with appropriate expertise.
Buying an established franchise business
When you buy an established franchise business you will need to follow all the steps described in the following chapters for assessing how much you can afford to spend, assessing the business and calculating what you think the business is worth. However, because it is a franchise there are extra factors to consider:
Check out how well the franchise works
You will need to carry out all the steps covered earlier for checking out the franchisor and how well the franchise works.
You should be given profit & loss account figures for a number of years (at least two preferably) which, if reliable, will show you how profitable the business has been. Hopefully a large part of the risk has been taken away by the fact that the business has been established and proved to have made money. However, you will still need to satisfy yourself that the franchisor/franchisee relationships are good, and the support provided adequate, because you are new to the business and will need support at least as much as the vendor did when he started. You will need more support in a way, because the business is already up and running, so there is no gentle early build-up. You will be expected to go on the training course, and will need that to be good, just as much as the vendor did.
The vendor is not going to tell you he is selling because he is fed up with the franchisor, or with working hours twice as long as he had been told, so you need to speak with other franchisees in just the same way as you would if you were starting a new franchise outlet.
Check the value
When you buy a new franchise from the franchisor, the fee is fixed and you take it or leave it. However, when you buy an established business the vendor will expect an enhanced price based on the proven profitability of the business and the goodwill created thereby. Obviously there will be scope for negotiation, and you will need to satisfy yourself that you are paying a fair price. The difference compared to a non-franchise business is the fees payable to the franchisor. The franchisor will expect to approve you as the new owner, and will normally charge some or all of the following fees:
• An administration fee for checking you out.
• A training fee for your training course.
• A legal fee for entering into a new franchise agreement with you.
In my view these fees, with the possible exception of the legal fee, should be paid by the vendor, or deducted from the agreed sale price.
Negotiating the deal
In addition to signing the franchise agreement with the franchisor, there will be a sale/purchase agreement with the vendor. You may wish to negotiate additional support from the vendor, and other terms.
How to assess a franchise - To learn more about this author, visit Timur Sultanov's Website.
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John PowerJohn Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website |
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Leanne Hoagland-SmithAre your sales where you want them to be? Will you be one of the few who achieves sales or business success or one of the many who have failed to change? Are you tired of being told you are like everyone else? Then you may find my first book on sales of interest. Be the Red Jacket in the Sea of Gray Suits, The Keys to Unlocking Sales available at Amazon or at http://www.processspecialist.com/red-jacket.htm. This book is a reflection of my no-nonsense approach to improving sales to overall business results. If you are truly committed to making sustainable changes, then I can help you secure a positive return on your investment because I focus on executable solutions not telling you the problems you already know you have. From training to corporate (group) coaching to executive one on one coaching, my approach is to assess, create awareness, build a goal driven action plan and then execute. The bottom line question is "Not do you or your employees know it, but do you or they want to do it?" Please call for a free strategy session at 219.759.5601. - Visit Leanne Hoagland-Smith's Website |
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Anne BarrAnne Barr has over 26 years experience in sales and marketing, six years as a franchisee. She has assisted over 367 business owners and purchasers to achieve their goals in career change, transition and exit strategy. She holds the designation of Certified Franchise Executive from the International Franchise Association, Certified Business Intermediary from the International Business Brokers Association and Board Certified Broker from the Texas Association of Business Brokers. Anne is active in professional organizations, networking groups and volunteers for non-profit entities. As owner/operator of four successful businesses, Anne has proven people skills and enjoys helping clients find the right "fit" in business ownership. Visit www.FranchiseOpportunitySpecialist.com for more information about me and my company. - Visit Anne Barr's Website |
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John BrennanJohn Brennan Ed.D. Dr. Brennan is President of Interpersonal Development, LLC, a training and development firm. Interpersonal Development has provided sales training and coaching to more than 3,000 sales reps from over 100 companies. A native of Australia, Dr. Brennan received his doctorate from the University of Rochester. His dissertation researched the effectiveness of Behavioral Modeling Technology in training people in interpersonal skills. While he has spent most of his career designing or delivering training, he was also a Vice-President of Sales of a training and development franchise with operations in 25 markets. Dr. Brennan has designed and delivered sales training in North America, Asia, Europe, Australia and the Middle East. He has been a guest speaker at numerous national and regional professional conferences. When Microsoft wanted Best Practices articles on sales for their web site, they called Dr. Brennan. The results are at http://office.microsoft.com/en-us/FX011387391033.aspx His firm’s clients have included Volvo, The Prudential, Merrill Lynch, Eastman Kodak, Gannett, Equifax Europe, the Economist Group and countless small businesses. - Visit John Brennan's Website |
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Jay Kubassek(Jay's Full Bio: EvanCarmichael.com/jaykubassek) In five years, Canadian-born entrepreneur Jay Kubassek went from selling mufflers at a Midas franchise to revolutionizing Internet marketing with the 2004 launch of CarbonCopyPRO, a online marketing education company, now worth over $20 million with customers in over 160 countries.
As an independent film producer, his upstart film fund Aliquot Films is currently producing a films with Spike Lee and Abel Fererra (starring Ethan Hawke and Dennis Hopper.)
Jay's entrepreneurial spirit is irrepressible. He’s the owner of five companies, a professional speaker and trainer, international real estate developer/investor, extreme sport enthusiast and emerging philanthropist. Jay resides in NYC with his wife Jamie, son Milo and dog Cooper. Visit Jay's official website: www.JayKubassek.com - Visit Jay Kubassek's Website |
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Financial Loan for Your Business - EvanCarmichael.com expert Timur Sultanov discusses how to get a financial loan to start a new business. First step is to find a business that you think can be a heavy earner! Many people think of taking a loan as the hardest decision of their life.
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