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Need Advice re buying a franchise


Assman
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A local franchise has caught my eye. The stated net earnings would allow me to scale back my actual job and concentrate on this venture while trying something different. It wouldn't come near to supplanting my income but would be a good supplement.

 

So the business, I randomly found as a commercial RE listing while I was looking for something totally different. While I do own my own business currently it's very different from this one I'm considering buying.

 

So a few questions:

 

I don't have a commercial RE: agent I've been working with. Should I get one or just use the listing agent?

 

Besides Tax forms to prove gross receipts and net profits what else should I look for?

 

 

Thanks in advance.

 

 

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Perhaps any monthly franchise royalty fees/payments that will eat into your returns?

 

The main question would be if it was so good, why is the seller selling?

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If Raj opens a taco stand, we all have to commit to flying out to the grand opening! FACT.

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If the business is in a leased building habve a lawyer look over the paper work. I had a friend build a business on a leased property to get screwed with a demolition clasue that got missed. Also as E7ite mentioned, look at royalty fees, and if you have to buy all your product through the franchise what the costs are. Preveious owners corporate tax returns should give you a good idea where things are at, but also go over current operating costs, make sure theres been no major increases. Also make sure the building is up to code and no major work is required.

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A local franchise has caught my eye. The stated net earnings would allow me to scale back my actual job and concentrate on this venture while trying something different. It wouldn't come near to supplanting my income but would be a good supplement.

 

So the business, I randomly found as a commercial RE listing while I was looking for something totally different. While I do own my own business currently it's very different from this one I'm considering buying.

 

So a few questions:

 

I don't have a commercial RE: agent I've been working with. Should I get one or just use the listing agent?

 

Besides Tax forms to prove gross receipts and net profits what else should I look for?

 

 

Thanks in advance.

 

Tax returns may not be a true indicator of net income, you may have receivables, inventory to account for, how assets are depreciated, what is written off that maybe actually a personal expense and cash payments that don't make it to the PNL.

 

I would talk to other franchise owners, you can do it during the disclosure process. You'll learn a lot regarding the pro's and con's, competitors, operational issues, compensation models, how much support you get from the franchiser, quality of their training, marketing support, ramp up time etc. Also issues like territory poaching and enforcement can a real problem etc. I would also use the company as a customer as well as it's main competitors.

 

When I started my business, I spoke and researched a number of competitive franchises. After speaking at length during the disclosure process with a number of owners, it became apparent that going it alone was the best option for me. But keep in mind I had 12 years of experience running and restructuring businesses previously. Plus side though was I learned a tremendous amount going through the disclosure process that proved ultimately invaluable.

 

Reviewing the lease is critical too especially if you're buying a retail type business. Relocation costs can be a killer and the landlord will know that and when the lease is up raise rent and call your bluff. I would talk to the neighbors if they have the same landlord.

 

Consider also how you are going to purchase it, I would recommend a down payment and some sort of payment schedule for the balance. If you can, work in some performance based goals, keyed to bonus payments to the seller. That way the current owner still has some skin the game and a reason to assist/advise if needed. Also I would do an asset purchase, that way you can cap an outstanding liabilities the business may face that you may be unaware of. For example their could be an upcoming W/C claim that the current owner may not be aware of.

 

Also have a lock solid non compete clause for the seller for at least 5 years. Don't want him opening up shop across the street.

 

Detailed background check on seller.

 

Call me if you want to discuss it further.

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