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Taking Over an Existing Franchise

Written by: Sebastien Page

Article Overview: Do you want to become part of a well-known franchise family but hesitate because of the legwork involved in launching the new franchise location? You should consider taking over a franchise that's already in existence. Take a look at the pluses involved in the transaction...

Taking Over an Existing Franchise

Do you want to become part of a well-known franchise family but hesitate because of the legwork involved in launching the new franchise location? You should consider taking over a franchise that's already in existence. Take a look at the pluses involved in the transaction:

- You'll be up and running right away. When you take over a franchise, it's already in operation – which means that you don't have to go out and search for real estate to purchase. Additionally, in the case of transferral, the current staff of the franchise will stay on, meaning that you don't have to conduct interviews and hire new employees. Furthermore, you'll have a well-established customer base and solid venues. The result of all of this? You'll be able to start conducting business right away.

- You'll have a good grasp of historic profitability. However, you shouldn't just purchase any old existing franchise; one primary reason that existing franchises are sold is that the franchisee bails because the business's financial figures aren't what the franchisee expected them to be when coming in. As a prospective franchisee for an existing concept, you have complete access to the business's monetary records and earnings history – take advantage of this. Do the numbers look solid? Go for it. Are the earnings questionable? Don't be afraid to walk away.

- You'll avoid paying certain fees. Closely inspect the franchise agreement for the company you're looking into. You'll probably be entering into the existing franchise agreement, rather than a new one, which could be a great advantage to you. For example, the fees paid to the franchisor in the existing agreement might be lower than those that a new franchisee would be required to pay. However, you'll have to pay a transfer fee, which could be considerable. Be aware that the franchise fee can also be a percentage of the purchase price.

When considering purchasing a concept, remember to do the following:

- Figure out why the original franchisee is leaving the business. He may be selling due to poor relations with the franchisor – which would affect you as well.

- Take a look at relevant location demographics – are they shifting in a way that could negatively affect your business? Consider market trends and predictions.

- The exiting franchisee has the primary say regarding the actual purchase price for the existing franchise. While you may have some say in this matter, the exiting franchisee has the final word. Be aware that the vast majority of franchise agreements give the franchisor right of first refusal when an existing franchise is up for sale – that is, the franchisor has the legal right to purchase the franchise before it can be put up for sale. To your advantage, there is usually a window of time during which franchisors can make this decision; find out how long this window generally stays open.

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  Evaluating the franchisor

Article Tags: bails, current staff, customer base, earnings, existence, franchise agreement, franchise family, franchise fee, franchise location, franchises, franchisor, grasp, legwork, pluses, profitability, prospective franchisee, real estate



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