105
PANEL OF EXPERTS
Q:What are the advantages of taking on a
e
resale business?
s
e
a
d
v
i
c
PETER WILLIAMS expensive. Recently I became aware of a franchisee, established less
Franchise consultant than a year, who suffered a heart attack. Fortunately he recovered, but
A: The main advantage of a resale concerns what was advised by his doctor to take things more easily. He was therefore
amounts to a quantum leap forward into business, obliged to sell up prematurely and although he had made a promising
f
r
a
n
c
h
i
circumventing all the work that is otherwise necessary start, his business was still at a formative stage and the sale price
in setting up from scratch. Key elements already in reflected the extent of its development thus far, providing the purchaser
place should include premises and staff (both where applicable), with something of a bargain.
equipment, customer base, good reputation, established local It is worth bearing in mind that long established franchisors
awareness and so on. with large franchise networks are likely to have resale opportunities
As with all business transfers, the asking price will depend on the arising fairly frequently due to retirements, etc., and these are well
trading performance which has been achieved. One can expect that a worth exploring. From time to time I refer to the importance of
franchised outlet that has been established for some years, with good comprehensive training and this is a particularly vital aspect when it
repeat business, a healthy order book and strong profitability supported comes to resale situations, where newly appointed franchisees have to
by audited accounts will justifiably command a substantial sum. undertake a steep learning curve in order to effect the smooth take over
However, it is important not to assume that all franchise resales are of a going concern.
RICHARD HOLDEN an existing franchise can be a sensible and less risky option way into
Head of franchising, Lloyds TSB starting a business. It has many advantages such as the ability to
A: Many people looking at business opportunities generate profits at an earlier stage and income from day one. It is also
naturally think that they have to start a franchised easier to make more accurate financial projections as there is a trading
business from scratch but that is not the case. Many history.
existing franchisees are looking to sell their franchises for It should be remembered that when buying a franchise resale the
a variety of legitimate reasons. purchaser may be paying more upfront investment as they will be
Should the potential investor decide to buy a franchise resale they buying the goodwill of the business. As with any franchise opportunity
will be investing in an established business with a ready-made client the investor should undertake thorough research before making a
base, existing suppliers, location, trained staff and much more. Buying commitment.
CHRIS GILLAM to integrate quickly into the marketplace.
Franchise consultant Another substantial advantage is that the existing team is likely to
A: Many franchise resale opportunities arise when be highly competent and familiar with the business, its products or
franchisees want to retire. When a new franchisee services and operating systems. Usually, they know the customers,
buys a resale in that situation, they are usually taking having established a good rapport with them, as well as having built up
on a well-established business with regular customers. a reputation for reliable and efficient service
The benefits associated with financial stability should provide a solid Major benefits may apply especially to franchises which are property
foundation from which to develop and grow the franchise. based. Taking over an existing, fitted out and working unit or shop is
Buying an established franchise may provide a faster return on likely to be much faster than the process of finding suitable premises,
investment than starting a new venture from scratch because all the negotiating a lease, ordering stock, fitting out and equipping the
systems and procedures are already in place, enabling a new franchisee business and recruiting staff.”
JOHN PRATT The disadvantage of acquiring an existing business - apart from the
Founding partner, Hamilton Pratt additional cost - is that the previous owner may have his own particular
A: As with most things in life, there are both way of operating the business, which if it was a successful business, you
advantages and disadvantages of taking on an may not be able to mirror and, therefore, you will be paying for customers
existing franchise business instead of taking on a new who may not stay with the business. If the business was unsuccessful
franchise business. In relation to the latter, you will then you will have to turn it round and establishing a new business may
undoubtedly (unless, of course, the existing business has been very well be easier than turning round a failing business.
unsuccessful) pay less for the franchise business. The downside is that As with all business
it will take you longer to build up the business because you will not acquisitions it is important that a
Send your questions for
have an existing customer base and so the first two years or so may purchaser obtains good legal and
the panel to:
be difficult. accounting advice and this does
Q&A, Business Franchise
With an existing franchise business you will have a customer base. not come cheap so even if a
One Victoria Villas
All of this, however, comes at a price - normally franchise businesses relatively small business is being Richmond
are valued at two or two and a half times net profits. This may require acquired the professional costs
Surrey TW9 2GW
a substantial amount of initial funding. can be disproportionately high.
or email:
editor@circlepublishing.net
www.businessfranchise.com February 2009
BF104-105_Q&A_FEB09 .indd 2 7/1/09 13:55:25
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