Preparing to buy a business - Franchise resales

Preparing to Buy a Business: What You Need to Know


There are numerous benefits to buying an existing business. Firstly, you have the staff and the resources in place who are already operating. There’s a ready made customer base and a product or service to sell. There may also be the potential to expand either through opening new offices or stores or entering a franchise arrangement.

On the downside, buying a business is generally more expensive than starting one from scratch where you can control your budget and grow at a pace that suits you. What might seem like a good prospect in the first instance can turn out to have too many problems lying under the surface that will cost you more time and money.

But, if you are going to buy a business, how should you prepare yourself to take it over and improve your chances of success?

Is It a Good Match?
The first thing you need to do is find a business that matches you – not only your skills and knowledge but also your own personal philosophy. Another issue is going to be the geographical location, whether the company is in one place or has offices in different parts of the country, perhaps even around the world, and how that fits with your circumstances.

You are going to have to decide whether you’ll go to a company direct and make an offer or you go through a business broker. A broker can screen certain businesses for you and, hopefully, find a better match not only for your budget but in line with your values and beliefs. They can also help with getting the right due diligence measures in place.

Putting Together a Top Team

If you are interested in an acquisition, the next step is to get the right team together that can help you move forward. This will include people like your bank, your accountant and a solicitor. Performing your own due diligence and making sure you have all the relevant information you require to make an informed decision is vital. That will not only include looking at the books but also checking out the company’s reputation, perhaps talking to customers and going to meet suppliers, and whether there are any underlying problems that have to be considered.

The Company Prospects

Of course, at the heart of all this is the performance of the company. What kind of revenue is it earning? What are the outgoings? What is the scope for expanding the business, either by investing in new offices or going down the franchise route?

One thing that many buyers don’t factor in is what impact the current business owner has. What happens when they are no longer there? Will customers who valued his or her presence at the helm of the company be likely to look elsewhere or try to find a better deal? How are the current staff going to feel about a new owner? And what restrictions are going to be in place should you wish to bring in your own team?

Future Prospects

At the top your list is also going to be how you drive the business forward and what prospects lie ahead. While you may have had these in mind from the start, once you get into the detail of the transactions, these can change drastically as you learn more about the company itself.

Preparing to buy a business is not a simple matter of getting out your cheque book and taking over. There are a multitude of issues to consider and decisions to get right which can impact on the final cost. Having the right team of advisors and support in place is key to success. Knowing what you really want is absolutely vital.

Spring Clean your business

Spring Clean Your Business In Preparation to Sell

There are numerous reasons why you may want to sell your business. It might simply be that you want to move onto something new. You may have decided to retire. Or you might think the future of your company is better served by new investment or different management. This is particularly relevant in areas such as franchise resales.

Selling a business, of course, is one thing. Actually getting it right is another thing entirely. If you want to sell your business for a good profit, then first you need to make sure it is worth it.

Is it the Right Time?

There’s often an optimum time to sell a business. It’s worth getting professional advice about the true worth of your company – a third party review of your assets and processes can not only be very revealing it can also give you a pathway to putting in the changes that increase your attractiveness to potential buyers and improve your ability to obtain a higher asking price.

One thing you need to ask is whether it’s the right time for you as a business owner. This is a judgement call but one which is quite important in the whole equation. The other issue to consider is if the industry conditions are good for getting a strong sale.

Get Your Books in Order

No business or individual buyer worth their salt will consider your company if the accounts are not transparent. Most will want to look at least the last three years of books and this needs to be formally laid out for them. The better your books look, the more likely you are to create a favourable impression. A review of your accounting procedures could well highlight areas where you could improve and make your business appear more attractive.

Keeping Your Business Clean

Any potential buyer will want to know that there are few, if any, underlying problems that might have to be handled in the future. Again this comes from having transparency about how you and possible franchisees conduct your business. That includes all written documentation concerning any contractual arrangements. It will also include details of any other relationships such as property leases and supplier information.

Is Your Business Growing?

Potential buyers aren’t going to be interested in a business that is stagnating. If you are too dependent on one particular customer or there isn’t the option to expand that makes an increase in profits realistic, then you may find that interested parties are few and far between. Another problem could be how much the business depends on you as an individual. This can be off putting because you are soon going to be exiting the scene. Putting in the processes that address this prior to going for sale can make a big difference to how attractive your business is and that often means handing over responsibility to your best employees.

In essence, potential buyers will look at:

  • Your track record and the potential for future development.
  • Your brand and how it fits into the market place.
  • The experience of staff currently on board.
  • The marketing support you provide to enable your franchisees to succeed.

Giving a shout out about how your business has a good track record and is set for expansion will appeal to potential buyers. When there is a prime opportunity to expand, buyers will not only be able to find new and exciting markets but also access services like bank loans to push their growth model forward.

How your business looks and it’s potential for the future is what largely determines the price that you will eventually be paid. Having the right team in place to make sure that your franchise resale looks as good as it can is important. For most business owners, getting an outside, professional review of the franchise and how much it is truly worth is the first place to start.

Your Favourite Store Could Well be a Franchise

Your Favourite Store Could Well be a Franchise

Most people don’t realise the brand name shop they are walking into is actually a franchise. It’s become a more popular way of operating a business model in recent years but has actually been around for centuries.

From MacDonald’s burgers and Subway sandwiches to your local opticians or favourite pub chain, many companies use the franchise process to expand their brand at a lower cost than normal. In the process, they provide great opportunities for entrepreneurs who want to run their own business.

The key to a franchise is that you get a licence to use a particular company’s brand and trade openly under their name. For instance, if you decide to take on a Domino’s Pizza franchise, you are allowed to use all their branding, products and sales processes and essentially operate as one of their outlets although you are a business owner in your own right.

To do this, of course, you need to invest your own money in the business. How much will depend on the franchise opportunity being offered. In return, you get access to support and the supplies you need to run the business successfully, as well as ongoing training to develop your entrepreneurial skills.

People choose to take on a franchise because there is less risk compared to starting a business from the ground up. You are involved with a brand that already has a track record and has shown its potential to succeed. There is normally an upfront cost to pay and then ongoing payments for things such as stock as well as employee wages to cover. Some budding entrepreneurs use running a franchise as a stepping stone to finally developing their own business idea.

Some of the most popular franchise opportunities today come through easily recognisable household names. These include fast food companies such as KFC and Pizza Hut, gym services like Premier Sport and Anytime Fitness and car hire businesses like Europcar. But it’s not just big names that are involved in franchising. There are literally hundreds of franchise opportunities available across a range of different industries, companies with a proven track record who are now looking to expand.

Taking on a franchise is, like any business development, a pretty big undertaking even if it does have less risk associated with it. It’s not just the initial investment in the franchise but a case of choosing the right fit which works for you as an individual. Most franchisees look for people with the potential to expand their brand – they are often willing to give you the training and support you need as long as you meet their profile.

It’s not simply a question of finding entrepreneurs who have the money to invest. After all, there is a brand and a reputation to protect so franchisors want someone coming on board who is more likely to succeed than not. In other words, they want a business owner who will enhance their reputation, not damage it.

The Franchise Professionals have an ILM recognised seminar specifically designed to enable you to find out more about becoming a business owner as a franchisee. click her to find out more

Can you earn your current corporate salary from day one of starting a business?

Something that I seem to come up against all the time is people coming out of corporate employment and want to be their own boss but still earn their corporate salary.

 

So, is that even possible? the answer is yes of course it is. However, you are going to need to have pretty deep pockets to earn a big salary from day one.  Let’s say you earn 100k now and you want to earn that by starting your own business, the best way to start is by buying an existing one. This then gives you a head start by already having customers and cash flow from day one.

 

Now that doesn’t have to be a franchise, it can be a stand-alone business, however we all know the benefits of buying a franchise!! especially when you are coming out of a corporate environment. So what better way to buy a business than to buy a franchise resale. Not just an existing business with customers and cash flow from day one but the support, knowledge & expertise of a franchisor who knows how to grow a business quickly.

 

A big myth that I’d like to dispel here and now is that franchise Resales are failing businesses, it’s not true, like any business franchises can and do fail, but there are so many other reasons for selling any business including a franchise.

 

So back to my main point; if you want a business that will earn you 100k, then you really need to be looking at the purchase price and the profit margin. There is no easy answer to this, it’s not easy to say what the profit margins should be because different sectors and even businesses in the same sector will vary because the overheads and the costs of sales will vary.

 

So actually, you might need to invest 800k in a business to earn 100k. You need to do your due diligence on the business to find out what it’s making.   On the point of due diligence, it’s worth pointing our here that people tend to wake up in the mornings and decide to sell their business with very little preparation. The accounts might look bad, because they have employed a good accountant to keep their tax liability down.  So, you might only need a business that is £300k. Are you catching my drift?

 

We all know a business is worth what someone is prepared to pay for it. So, you want to earn your 100k? you have come out of the corporate world with a nice pay off or have some savings and you have £30k cash to spend.  What do you do? A bank could lend up to 70% depending on the Brand and your individual credit rating. So, with 30k cash, the bank will lend you 70k, you have to take into account working capital and any extra fees a franchisor will charge on top of the business selling price. So based on what I have said about profit margins that means you will have an income of around 25-33k in your first year. So ask yourself, do I need to earn £100k in the beginning or will a lower income suffice to begin with if it gives you a better work life balance? of course this is a guesstimate and not based on anything in particular, but I hope it’s given you some quick food for thought when you are looking at the earnings aspect of buying a business.

Michael

The Advantages of Attending a Franchise Event

The Advantages of Attending a Franchise Event

Whether you are thinking of investing in a franchise or are running one already, attending a franchise event can be a great way of meeting like-minded people, getting to know your subject better and exploring new and exciting opportunities.

  1. You Get to Talk to the Experts

You can get all the advice in the world but if it doesn’t come from the experts, how much use is it? At franchise exhibitions, you can be sure that the people you are talking to are all running successful, profitable franchises. At the bigger events like the bfa exhibitions you can meet a range of experts from all sectors, across all industries and get the right information you need to make more informed decisions.

  1. Franchise Clinics

Franchise events generally involve walk-in clinics where you can get specific advice about how to go about investing as well as how to get involved with the best franchise. That can mean getting the heads up on things like financing, choosing the right franchise that fits your skill set and the pitfalls to avoid if you want to be successful.

  1. Seminars and Real Life Experience

Franchise events also hold seminars on specific issues relating to the industry, all of which can be very useful to the budding franchisee. You get to listen to real-life stories that can help build your confidence and point you in the right direction. With guest speakers who are at the top of their game, you also get the opportunity to quiz them about all aspects of investing in a franchise.

  1. Learn About the Latest Developments

Whether it’s help with funding or finding out what’s hot and what’s not, a visit to a franchise event can help you discover a whole lot of information you can’t find anywhere else. Like most industries, franchising doesn’t stand still and there are always innovations and new ways of thinking coming to the fore. If you want to keep your finger on the pulse of what’s happening, then these are the events to attend.

  1. A Great Place to Network

Not only are there plenty of experts at a franchise exhibition, you’ll be able to talk with and get to know other people who are thinking about investing. These can be individuals from all walks of life and with a variety of interests who can help you make up your mind which direction you are going to take.

For those offering a franchise, an event such as this also provides the opportunity to meet and get to know potential high quality franchisees. It’s an opportunity for them to show why they think their brand is suitable for investing in and what potential franchisees can get out of a partnership with them.

The next big one, the National Franchise Exhibition at the NEC in Birmingham, starts on 30th September and runs through to 1st October 2016. All the exhibitors are quality accredited franchise brands and there are some big names amongst them, including McDonalds.

Why people buy from brands?

Why People Buy from Brands

One of the major advantages of taking on a franchise is that you have a readymade brand to work with. There are a number of reasons why this makes sense, not least the availability of a proven product and, hopefully, all the support you need when you decide to come on board.

But why to do people buy from brands in the first place? Here are just a few reasons:

Peace of Mind

People like to be sure that they are getting the right product or service for them. A well-known brand comes with a reputation for delivering what is required, wherever it’s bought in the world. Peace of mind can’t be underestimated when it comes to people’s buying behaviour. That doesn’t mean they aren’t prepared to look at new products and services on the market but they will be more likely to choose a brand they recognise when they want a specific outcome, particularly at short notice.

Quality Guarantee

Along with peace of mind, is the fact that a settled brand provides the quality that customers are looking for. Whether that’s a cereal that always tastes good when you pour on the milk or a car that brings more miles per gallon and comfort. Quality products, fast delivery and strong customer services are all part of those brands that have strong core values. This leads to loyalty amongst advocates and is an essential part of the emotional attachment to chosen brands.

Value Added Extras

People may choose a brand because of its value added extras, the things that competitors don’t deliver or don’t deliver as well. A prime example would be Apple iPhones that not only give customers a recognised design and feel to their products but also extras such as quality app, music and media downloads.

Reflecting Values

Brands work best for customers when their core values match each other. So, for instance, if one of your key concerns is the environment and climate change, you are more likely to opt for a brand that has sustainable working practices and has made key commitments to reducing their impact on the world around us. If you are concerned with good, healthy eating at a low cost then you might be attracted to a supermarket brand that has a wide range of fresh vegetables that are organically produced at a price you can easily afford as well as ethically sourced.

Sharing and Social Acceptance

People like to fit in with other people who share their world view. That’s why demographics are so important when a product is being marketed to the wider world. The brand will have a specific customer in mind but those same customers will want to fit in with their peers as well. So clothing brands become popular amongst certain types of young adults, who want to maintain their standing amongst peers, and all subcultures develop their own trends that brands can connect with.

The major factor in brand development is making that big emotional connection with consumers. Once people feel something for a product or service then they are more likely to use it again and again. Don’t forget that each of us has our own brand, good or bad, as well. A computer geek may well favour a brand that is pushing the boundaries of tech rather than one that produces the same old product each time.

People buy from brands because they fulfil their core needs and wants and if you can find what appeals to your chosen demographic and deliver it in spades, then you have a head start over your nearest competitors. When it comes to buying a franchise, this aspect of business development is already in place.

Why buy a franchise?

The Benefits of Buying a Franchise

There are many people who dream of being their own boss and running a business. Go online and you’ll find plenty of stories of entrepreneurial success – simple ideas that have taken off and made their creators successful. It’s a big move though. Going out on your own is fraught with dangers, however, even in today’s hi-tech world where we have so many business tools available.

Buying a franchise is one option that many budding entrepreneurs consider as an alternative. It provides a way of running your own business with an already proven product. You also get the support you need which, while it doesn’t guarantee success, gives you a good chance of making it if you put in the work and have the right attitude.

A Ready Made Business Model

Choose the right franchise to buy into, and you have a business with a proven track record, a strong, recognised brand and a loyal customer base. It gives you a big leg up compared to starting a business of your own from scratch and the effort you need to put in to get traction in a competitive market place. The way business is done in a franchise has already been mapped out for you including the look and feel of the product and how it is marketed to customers.

Training and Support

One of the key factors in going it alone is learning the skills and developing the business acumen that lead to success. For many new entrepreneurs with start-ups this can be an extremely sharp development curve and mistakes can often be costly – that’s why a large number of new business fail within their first year.

A good franchise opportunity comes with the right training and support that is tailored to your needs. They’ll be able to identify where you need to develop your skills and provide the kind of help that many start-up entrepreneurs can only dream of. With all that experience and assistance to fall back on there’s obviously more chance of success with a franchise. Don’t forget, a good franchisor will only choose those people who have the potential to help grow and promote the company – it’s not just a simple question of attracting people who are willing to pay to use their brand. That’s not in their interest.

Lower Risk, Great Returns

Because you’re buying into a proven product or service, the risks of failure are certainly lower. If you have the right drive and determination and pick the appropriate franchise that matches your entrepreneurial character, then you should rightly expect to succeed.  In return you get the independence that you would expect from running a small business with the financial benefits which go with that. You might also find it easier to get finance to run a proven franchise rather than one that is being started from the ground up.

You don’t need to have experience of running a business yourself to own a franchise and it gives you the chance to learn and develop your entrepreneurial skills ‘on the job’ as it were. What franchise companies are often looking for is the determination and ability to succeed rather than a proven entrepreneurial track record per se. That’s what makes it an ideal place to start for people who want to step out into the business world and blaze their own trail.

What are you going to do with your business when you decide to move on?

I have not found a cure to stop people from dying, so your life will end at some point in the future.  So… most people I talk to have no idea what they are going to do with their business when they decide to call it a day.  Now you might call it a day for various different reasons, you might want to retire, you might want to do something a bit different, on a slightly dour note you might come down with a serious illness or even worse it might be your time to go.

I suppose this question does also depend on who is reliant on the business.  If  you have a self-employed job ie: you work on your own and only get paid when you work, then apart from letting your customers down I suppose you can just shut the doors and call it a day, because you’re the only one reliant on the business.  Now let’s just think a bit bigger, you have a business: i.e. you earn money even if you’re not there everyday but it’s still your input, what then? Well the good news is that you have a saleable asset, so if you want to you could sell your business or pass it on to your children.

When you start getting to this point you do need to think about your exit plan, let’s be honest you don’t want to be working forever! Just imagine spending a few more days on the golf course, or with your other half shopping, ok… you might want to work more lol.  Did you read my blog on “why systems are so important” if not I suggest you read it.  Systemising your business will give you the freedom to go and do whatever you wish with your life, it also secures the jobs and livelihoods of your staff.

Some of you are still not even going to consider your exit at the moment, however, I highly advise that this is something on your “to do over Christmas” list.  If you know you want to be out of the day to day side of the business in 10 years, then you need to plan for it.

If you are serious about selling the business then you will need 2-3 years to prepare for the sale of the business, if you can.  This is where you start increasing your profit figures on paper and stop paying for the husband’s or wife’s car, the kid’s private schooling and that boat in the south of France, all this now has to go back into the business to create a more saleable asset.  I’m not saying that not doing this is going to stop you from selling, but I am saying that you will not receive the price you want to achieve without increasing the profits on paper.

It’s simple, purchasers want to buy businesses cheap, and sellers want the best price for their business, so make it the best price and the buyer can’t argue with you.  Purchasers really don’t care about your lifestyle and the big house, and nice cars, they will only look at what’s written down on paper.

Please look at your exit plan and have an idea of what you are going to do with your business, don’t just really on hope.

Michael

Franchisors and resales – the need for strategic action

I still find it strange that many franchisors fail to grasp the huge benefits to be accrued by having in place a structured and pro-actively driven franchise resales process. I am not sure of the reasoning behind this rather blinkered approach – it may be financial, the fear of getting it wrong or simply not seeing value in the process – but whatever the reason there are large numbers of franchisors who are simply missing out.

All franchisees in whatever brand go through a lifecycle. From the excitement of initial acquisition and business launch through to the slightly precocious early years and finally to maturity and stability that can come with experience – often termed the ‘comfort zone’. Franchisees may need to exit at any of these stages but the main time for franchise resales to occur is at this latter stage in their life-cycle when either they wish to retire or are sitting on a golden nugget of territory which is under exploited and the franchisor would like them to retire.

Whatever the stage or reason, franchise resales occur and if left unmanaged can be stressful, troublesome and filled with hassle for all parties. Time to have a structured franchise resales process in place! Of course in this day and age the process doesn’t need to be a burden on the franchisor and their executives, it can of course be outsourced to highly competent specialists.

To my mind there are many benefits gained by having in place a fully functioning franchise resales process. The first and clear benefit is that the franchisor will have, by helping and managing a franchisees exit from their network, a seller who is happy with their time as a franchisee and is grateful to their franchisor for providing them with a full ‘cradle to grave’ support process. This undoubtedly will mean they will speak well of the franchisor once they have gone and not be bad-mouthing them to all and sundry because they were cast adrift during the final stage of their time within the franchise. No brand needs a poor reputation.

The second benefit is that the purchaser, the new franchisee, has a clear and smooth path to entry. Because the franchisor was there to help them and to control the way the business was sold to them they know what they are getting into and are not overstretched financially or operationally. This means the new franchisee hits the ground running and is therefore ready and able to grow the business from its current position as any issues, if there were any, have been ironed out before they take over. Not having any ‘got to fix it’ issues early on gives them confidence to grow which of course means additional fee payments or product sales to the franchisor – a true win-win situation.

This also gives a great PR opportunity for the franchisor which surely is yet another added benefit.

A further benefit is that of maintaining brand presence. If franchisors do not support franchisees during this last phase of their life-cycle or at any stage when they have decided to sell up, the risk is they will shut their doors and simply walk. The result of this action is that the franchisor then has to advertise and re-recruit a franchisee for the territory or location which means additional cost for the franchisor, a vacant location for a period and a new franchisee who has to start from scratch. Far better, surely, to have them take over an established operation and save that cost and hassle for the franchisor.

These are the key items which I believe should be within the armoury of every franchisor no matter how large or small, how established or fledgling. It is a subject I have discussed often over the years with bfa members, at conference, forums and at bfa organised Specialist Seminars

  • Key items for a structured resales system
  • Guide to selling for vendors contained in the Ops Manual
  • Business planning and exit planning process
  • Dedicated management of resales
  • Valuation guidance
  • Guidance for purchasers
  • Template prospectus of sale document
  • Managed negotiations
  • Constant and consistent communications
  • Dedicated solicitor to oversee the transaction
  • Pro-forma Sale & Purchase Agreement (tripartite to include the franchisor)

This list could be expanded to provide finance acquisition advice but I believe the above will satisfy the requirements of most franchisors.
Do I hear a cry of “what about the cost of all this?” Well the costs are not borne by the franchisor. The cost of selling a business lies squarely with the seller and the cost of buying a business lies squarely with the buyer. As indicated previously this service can also be provided very effectively by outsourcing it to a specialist franchise broker at no cost to a franchisor. A well run franchise resales programme will cover its costs easily and when a long view is adopted the benefits accrued through having a new motivated and growing franchisee in place will pay countless dividends to the strategically savvy franchisor.

The Franchise Resales Pavilion at the National Franchise Exhibition 2015

logo for NFEOnce again this year Franchise Resales Ltd is pleased to sponsor the Franchise Resales Pavilion at the National Franchise Exhibition at Birmingham’s NEC on October 2nd and 3rd. This is stand F260 on the exhibition plan and is situated next to the VIP Lounge.

Since 2010 The Franchise Resales Pavilion has showcased the wide range of existing franchises which are available to purchase by new franchisees.  Once again this year we are illustrating the strength of buying a franchise resale on The Pavilion displays and Julie Taylor, our MD, will be speaking on both days in the seminar theatre about the Pro’s and Con’s of buying a franchise resale.

Franchise Resales started down the route of sponsoring the Franchise Resales Pavilion five years ago after many discussions with the exhibition organisers. We feel it part of our responsibility as Affiliates and active members of the British Franchise Association to provide as many options for prospective franchisees to investigate as possible We believed there was the need to offer prospective purchasers of franchises the ability to explore the full range of options available – not just new start business but also the chance to acquire an existing business, a franchise resale.

The UK franchise community has been established for around forty years and has developed to encompass over 40,000 franchised units operated by approximately 23,000 franchises. So a little like the ‘baby boom’ running through the UK population there are a number of franchisees who are approaching retirement.  Typically a mature franchisor would have about 10% of their franchised network considering retiring so they will be actively seeking new franchises to join to replace them either with a new site or by taking over a retiring franchisees business.

These retiring franchises seek to realise a return on the time, money and effort put into developing their business and a franchise resale provides that opportunity for them.  It also provides the opportunity for a new owner or owners to take on an already trading business and grow it further and faster than they would be able to do with a new start business.

A franchise resale provides a trading business from day one.  This brings immediate cashflow, brand presence and if required staff and premises already in place for the new owner to develop and drive.  In addition because there is a trading history to prove the success of the business funding for the purchase is that much easier to secure.  We at Franchise Resales Ltd feel these benefits make the investigation of existing business a vital part of the research and due diligence which prospective franchisees should carry out.

The Franchise Resales Pavilion (stand F260) will showcase a range of existing franchises for resale across most business sectors.  The team on the Franchise Resales Pavilion will be on hand to discuss how the acquisition process works, and how the unique Franchise Resales support system guides prospective purchasers through the maze and hurdles of business acquisition.  They are also able to discuss with prospective sellers of franchises and franchisors how to optimise business value and provide a step by step process for sellers to achieve their goal – a successful franchise resale.

See you on October 2nd and 3rd at the Birmingham NEC.