How to Buy a Franchise Business for Sale

A franchise business is one in which the owner (franchisor) sells to a third party (franchisee) the name, logo or the rights of the business so that a replica of his/her establishment is set up. The franchisee sets up the place in a similar manner to the franchisor’s establishments. This includes wearing the same uniforms (if any), selling the same items or offering the same services and having the same or very slightly deviating prices.

Purchasing a business franchise has become a common trend, especially in the UK market. This is because setting up a business using a pre-established brand name gives one a great head start, by preventing all the hustle that comes with setting up a business from scratch. In return, the franchisee pays the franchisor a certain percentage of the earnings at intervals agreed upon in the contract. Below are the steps to follow when purchasing franchise businesses in UK locations, but the same methods usually apply for other locations, as well:

1. Do research on franchise businesses for sale

Before settling on any franchise business offer, it is important to do research on those that are in line with your expertise, qualifications, budget and most importantly your interest. The minimum requirements demanded from a potential franchisee vary depending with the franchise, but they generally revolve around managerial experience, industrial experience and a reliable source of income.

Your budget should be able to cover costs of training, lease or rent, staff, furniture, equipment and advertising fees among others. With contemporary technology, low-cost franchise opportunities can prove profitable and satisfying even when they are not the trendiest thing.

Many franchises are strict on policies because the failure of a franchise translates to great failure for the whole brand. Other requirements may include that the franchisee must be 35-55 years old and should not have owned a business before, but this isn’t always the case.

Moreover, it is beneficial to source for information regarding the franchise’s business agreements and what they consider a suitable location. It is also recommended to go through any reviews and complaints made to the franchise to avoid investing in a frustrating business.

2. Obtain the initial application for a franchise business

Acquiring franchises can either be an easy or tiresome process when it comes to applying. It is crucial to provide complete and correct information to prevent early disqualification from the process.

The franchisor will provide a number of documents including the franchise agreement, which outline the responsibilities of a franchisee, fees required and the regulations of the business. It also gives information regarding the business’ legal, performance and financial history excluding their loss/profits and future investments.

You can involve a lawyer or franchise consultants to help you clearly understand the document.

3. Attend the discovery day of the business for sale

On this day, potential franchisees are invited to meet with the franchisor’s management team. There are one-on-one interviews, group presentations as well as visits to some of the franchise setups. As the name suggests, this day offers a great opportunity for franchisees to learn about the company culture and the various personalities of potential colleagues. Any further questions or concerns should be voiced on this day.

Discovery day also involves you as the potential franchisee checking out for loopholes or red flags in the company, including disorganisation, personality misfits, unclear responses, unreliable promises and unsustainable expansion plans. The franchise team also goes around checking for the qualities of a potential franchisee such as business enthusiasm, commitment, discipline and leadership qualities.

4. Review the franchise sale agreement

This agreement is issued following your being shortlisted as a franchisee candidate. It gives you the mandate to own an establishment under the franchise brand and per their rules and regulations.

It includes supplier rules, preferred pricing, territory protection, training, transfer of ownership among others. It also entails any agreements made between parties whether verbally or in writing. You may want to involve a lawyer at this juncture as the contract, once signed, is legally binding. Any further discrepancies should be addressed at this time before signing.

5. Obtain financial assets for a franchise business for sale

There are various options from which to get the necessary funding to start up a franchise such as loans, partner lenders and other personal investors. It is vital to set aside money for miscellaneous costs such as unforeseen expenses, reduced cash flow and inflation costs.

Once the money comes in, acquire all that was budgeted for including equipment and the business space. For the latter, it may be beneficial to involve a real estate agent whether buying or leasing space.

Now that a big chunk of the process is done, you need to take up training and attend workshops to obtain the necessary knowledge and skill-set for the business. And when all that is done, have a grand opening with promotional programs to entice a strong customer base and to celebrate your success.