Franchise 5

Should I Buy A Franchise Or An Existing Business?

Franchise

Have you been thinking about purchasing a franchise?

  • Franchises have an upfront fee commonly referred to as a Franchise Fee.
  • Franchises have training that a franchisee must complete as well as ongoing training.
  • Franchises typically have ongoing support in the form of ongoing training and logistical support.
  • Franchises typically have systems in place to drive business and grow the franchise.
  • Franchises typically have branding, a specific uniform look for name and product recognition.
  • Franchises have an ongoing fee called a Royalty. This is to keep a vested interest in the success of the franchisee.
  • the Franchisor and Franchisee normally have an ongoing relationship.
  • Franchises will often have a network of support.
  • Franchises trade a degree of control for a greater amount of structure.
  • Franchises start with a clean slate. You have name recognition but your reputation is what you make it.
  • Everything starts out new so you don't have to worry about equipment breaking down.

Existing Business

Have you been thinking about purchasing an existing business?

  • Businesses are normally purchased either in what is called an asset sale, or a stock sale.
  • in either case, part of the sale price is comprised of assets of the company and goodwill. Goodwill is based on the profitability of the company and expected ongoing relationships with customers.
  • Purchasing an existing business typically come with existing revenue and a customer base.
  • Unless negotiated beforehand, once a sale is completed, there is no additional support provided by the prior owner. The new owner is left to sink or swim.
  • There are no ongoing royalties but there is also no ongoing support provided after the sale.
  • The sale of a business is predicated on a due diligence period. Because the sale of a business is purchased as a "buyer beware" transaction, thorough due diligence, is highly advised.
  • Unfortunately, there is no way to know for certain the true reputation of the business, condition of the equipment, relationship with the employees or other factors that are typically unknown until after the sale.
  • Due to the many factors involved, you have to be very careful in determining the value of an existing business. It is always smart to pay for a certified appraisal and to have all the equipment inspected.