Buying an Existing Franchise
There are a few reasons that I get asked about buying existing businesses frequently.
The first is a fear motivation, buyers may want to go into business but because it is their first venture, they want something that someone has already gotten settled in and producing acceptable numbers removing perceived risks.
The second is a strategic buyer that is building a portfolio and does not mind the acquisition taking a while to return on their investment to get a predictable addition.
The third is a buyer wanting to get into a brand that has sold all the locations in the area they want to operate in and the only way they can get in is to buy one from one of those original buyers.
Let’s look at resales and figure out what your best strategy would be. But first, let’s talk about how businesses often get sold.
Imagine there is a very successful franchise location that has spent years winning over customers and growing their brand. As they operate their business people in their community are appreciating what how they operate and the asset they have built. Customers appreciate the experience they have and also want to provide that to their community. Business owners and investors appreciate the asset the owner has built and want to add it to their portfolio.
So, where is the first opportunity for that owner to sell?
It is when a customer, business owner or investor whispers in the ear of the owner BEFORE the business is for sale that they want to owner to contact them when they are ready to sell. This happens more than you may think and we rarely realize that this sale is happening until it is done.
For various reasons not every business attracts offers before they are ready to sell. If a seller has not had someone approach them and they want to take their business to market they may call a local business broker. That broker will often start reaching out to their select list of known buyers in the market to start testing how fast they could move it. If those buyers pass on the acquisition, the business may be listed on the broker’s website and through other resources for sale.
Some say it is far better to be at the front of that line and whisper in the seller’s ear before they decide to sell.
The challenge can be that if you have identified a particular brand, and there are none for sale, you will have to decide if you wait for the business you have targeted or start looking at new options in the resale market.
And here is one of the risks most people do not anticipate. If their first choice is not available, then they start scrambling and making bad choices out of a search for speed simply because they already decided to buy a business.
The first lesson of resales is that it happens when it happens, getting it right is better than getting it done fast.
If you have been looking online and can’t find a great franchise resale to buy, what is your best strategy?
Well there are a couple options here. You could start talking to owners of the businesses that you believe would be a perfect fit for you and seeing if they would be open to selling.
Alternatively, you may want to consider buying new licenses for the brand you have identified. Why, you ask?
Access and information…
Becoming part of a franchise system you will have a built-in relationship with other local owners and probably access at some level to how they are performing. Approved franchise owners are also a great buyer for sellers in that system to consider, they won’t go through all the discovery of a sale process just to have it fall apart if the buyer can’t get approved by the franchise brand. Along the same lines is that growth capital may be easier for a buyer from the same system to get than new funding for a buyer not yet in the system.
While you may want resales, your plan may be best focused on starting with new licenses and then adding to your portfolio. I have seen this plan executed well many times.
You may even find that risks can be mitigated and ramp up speed can be positively impacted by a good owner following the system you buy into, so new licenses may carry all the benefits you would expect from a resale.
This approach also helps overcome the tendency to go into that bad frantic buying mode and scrambling to buy the first good, or bad, business you can find.
Building a portfolio is a process, it will almost inevitably include a combination or resale and new locations. Start where you are, make good choices and build your empire.
Let’s go find your success story!
George Knauf is a highly sought after, trusted advisor to many of the top franchise ownership groups in the world. With over 25 years of experience in both start-up and mature business franchise operations he is uniquely qualified to advise individuals that have dreamed of Building their own empires. Whether you have an existing portfolio or searching for your first franchise, he can help you to pursue your dreams. Contact the Franchising USA Expert, George’s Hotline: 703-424-2980.