4 Important Facts to Know Before Purchasing a Resale Franchise
When entrepreneurs purchase franchise units, they must start their businesses from scratch with the help of their franchising companies. But if they want established businesses, they may prefer purchasing resale franchises. There are some inherent advantages to buying a franchise resale unit, including an existing customer and revenue base. But you must determine which option is best for you. That said, here are 4 important facts you need to know before buying a resale franchise.
Why Is Owner Selling?
Always ascertain why the owner is selling the franchise before you purchase it. Some valid reasons include retirement, relocation or the owner’s desire to pursue other business interests. The owner may also indicate that the business simply wasn’t for him, which is a direct but honest response. Less obvious reasons and those you should be concerned with include poor management or a bad reputation of the owner.
Evaluate Your Own Reasons For Buying
Once you realize why the owner is selling, be honest with yourself about purchasing the resale franchise unit. This may be obvious to some but not everyone. Don’t use money as your primary motivator. Sure, the owner may have an established number 1 franchise that you’re aching to buy, but is it the right business or industry for you? Whether you’re purchasing a resale franchise or any existing business, make sure you’re buying a unit that interests you and matches your skills, according to the U.S. Small Business Administration. The business should also meet your location requirements as well as the number of hours you’re willing to devote to it.
Review The Financial Records
The owner will be selling his franchise at a specific price. But you must determine if that price, whether it’s above or below the price of purchasing the franchise from scratch, is worth it. To make that determination, ask to see the financial records. As with all existing businesses, review at least five years of tax returns and financial statements, according to Entrepreneur. Examine assets and liabilities and determine the valuation of all inventory, furniture, fixtures and equipment. Hire an accountant to assist you with this process so you can better negotiate and make a more savvy business decision.
Obtain Details From The Franchise Company
You can’t make an astute buying decision without determining whether it’s best to buy the resale franchise unit or new one. But don’t tell the franchise company about the resale opportunity. In most cases, the representative will probably advocate purchasing a new unit. Compare purchasing prices. Determine whether you have the finances to sustain yourself until you’re in profit with a new unit. If the resale franchisee is offering seller financing and you have a low credit score, it may be more advantageous to go with the reseller. That may be the only option for owning the franchise. Weigh the pros and cons of both scenarios and make your decision accordingly.
