The Franchise Buyer Wants It All, Profitable Business, Proven Systems, Brand Recognition, And More.
How can you make your business attractive to a franchise buyer? Is it worth trying? And why would someone choose your business over a franchise? These are all the questions that you need to answer. But first we need to explore the specifics of what attracts a buyer to a franchise.
A franchise buyer can reasonably be described as someone wanting to be in business for himself but not by himself. Franchisors know this and most if not all use it as part of their sales pitch. And use it very effectively. Buyers of franchises can also be characterized as being risk averse. And there is ample evidence that franchised businesses have a much lower failure rate than non franchised businesses.
At the macro level, these appear to be the main reasons that people buy franchises, or franchised businesses. It doesn't matter whether it is a Dairy Queen, either as a start up, or in the form of an existing operation. It is also true for the various conversion franchises like Mr. Rooter, where existing plumbing businesses pay to become part of the Mr. Rooter brand and support system.
Franchise buyers don't want to have to develop, test, document, and implement systems. That is one of the reasons that they buy franchises. Almost all offer proven systems to their franchisees. Among those franchisors offering retail food franchises, like burgers, there is likely at least one that covers proper wash room cleaning in its operations manual.
Because of the systems provided, operations manuals, all based on proven effective practices, franchise buyers have high expectations of success. But that success comes with a price. Much freedom of choice and discretion is taken away by franchisors, through the detail in their franchise agreements. Reminiscent of that old adage, "The big print giveth, and the small print taketh away". And the penalties for being in breach of a franchise agreement can be severe.
Franchise buyers seeking to buy existing operations may encounter certain difficulties. One of these relates to the length of franchise agreements. In the case of an agreement with a 25 year term, and where there are 12 years remaining, the seller and prospective buyer will need to have the term extended. Otherwise the seller won't achieve full price, and the buyer will need a lower price because of the shorter time period for recovering capital.
In most cases the franchisor must approve the transfer, and the new franchisee before the sale can be completed. Some agreements provide that this approval can not reasonably be withheld. Others have no such wording. In the latter case, approval or lack of approval can be quite arbitrary. Not a comforting situation for either buyer or seller.
Most franchisors encourage prospective franchisees to talk to existing franchisees of their own choosing to get a sense of what life is like as a franchisee of that particular business. Some do not. Although how they sell franchises is a mystery to me. In most cases, a prospective franchisee has no reason for any illusions about the business he is trying to enter. As a franchisor this is just good business practice, as it removes much that could create misunderstanding.
A franchise buyer, proposing to open a new franchise is implicitly making the following deal. I will put up my capital, and my labor, and you contribute proven systems, and a known brand. For someone considering starting a business from scratch, this is undoubtedly a desirable bargain. Considering the high failure rate attaching to most start ups.
Someone seeking to buy an existing business may not find the prospect of buying an existing franchise quite as appealing. In most cases an existing business has proven its success, so can not be considered a start up. So the failure rate among start ups is less relevant. Add to that the constraints that will be imposed on the buyer by the franchise agreement. They may be more than the buyer wants. Then there is the matter of being approved, and likely having to extend the term of the franchise agreement.
For these reasons buying an existing franchise may not appeal to everyone. Even though there are many good reasons for them to be a franchise buyer. And even with the greater assurance that a franchise brings to a start up, they may not wish to accept that challenge.
They could well be attracted to a business that looks very much like a franchise, without the formality and structure imposed by a franchise agreement. What if you could make your business look like a franchise in many of the important ways. Business systems in place. A history of increasing profitability. A name recognized and respected in your market place. How do you think it will appeal to this type of buyer?
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