A franchise resale can provide an investor with some significant advantages, but you still need to do your homework, Richard Holden, head of franchising for Lloyds Banking Group, says
Buying an existing franchise business rather than setting up a new territory can provide an investor with significant advantages.
There are, however, risks associated with buying a resale franchise - and if purchasing an underperforming unit, the risks are substantially greater. One of the first tasks is to establish the reason the business is being sold. You’ll need to dig deep to see if there are any skeletons buried that may impact your decision to purchase the business.
Once you’ve established the motivation for selling, look at the financial performance over the last few years. The business is already trading, so will have customers, enquiries, sales and service delivery from the outset.
However, underperforming businesses may have poor relationships with their staff, suppliers and customers, which may impact your ability to turn them around. Any buyer needs to adopt a structured approach to ensure they understand the potential of the business opportunity.
Purchasing a resale will usually be more expensive than buying a new franchise territory. This is because the business is probably generating an existing profit and the owner will be paid a premium for it.
If you haven’t got the required capital from personal savings, financial assistance is at hand from banks, such as Lloyds, that specialise in the franchise market. This may require you to take out a business loan and usually inject at least 30 per cent of the capital required from your own savings.
With an existing business, there is evidence of what has been achieved by the outgoing owner, so financial forecasts can be based on factual information that gives credibility to the proposal.
One way to guarantee you receive relevant, sector specific support and funding is to approach a lender that has a dedicated franchise team, such as Lloyds. In doing so, the bank will have a solid understanding of the challenges franchise owners are likely to face, and tailor the most appropriate funding to fit your requirements.
Prospect franchisee certificate
The British Franchise Association Prospect Franchisee Certificate is an essential training programme for prospective franchisees looking at investment.
The PFC offers an impartial franchising education on how to find, research and run the right business for you. After completing all the modules and assessments, you’ll be armed with the facts you need to make an educated decision on your future business.
Best of all, it’s available free of charge and can be accessed by visiting bfa.trainme.tv.