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Don’t Purchase An Existing Franchise Without These Tips

A franchise seems, on paper, like a great way to get your leg up in business, using a recognizable name to avoid some of those initial hurdles of getting customer interest.

By Ryan Velez

A franchise seems, on paper, like a great way to get your leg up in business, using a recognizable name to avoid some of those initial hurdles of getting customer interest. In fact, there are currently close to 750,000 franchises operating in the United States, and they are expected to bring in $710 billion in 2017. Franchise consultant Nancy E. Williams recently contributed to Black Enterprise with some of her thoughts on what you need to do before jumping in.

For one, don’t fall into the trap of thinking that everything you are inheriting is good. For example, doctored financials may bolster your initial thoughts on cash flow. The trained staff you already have may have a chip on their shoulder. And that customer base you’re counting on may be more attached to the previous owners than the name.

As a result, any franchise that goes on sale needs to be put under the microscope, starting with the finances. “Profitable businesses for sale are rarely advertised. They are typically sold to friends, family, or competitors. And when they are, an owner will inflate the asking price, hoping to get something they consider to be fair,” Williams explains. As a result, you may be surprised to see creative accounting when it comes to small businesses, done for tax purposes, employee compensation, and the owner’s personal use of items. The same goes for employees, and any pertinent information should be shared as a part of your purchase agreement.

When it comes to franchises and customer base, things can vary. For example, some businesses are more relationship-based than others, and customers tend to choose people as much as they choose a service. As a result, when you hop in the driver’s seat of an established franchise, there is a good chance that people may not follow to your management, simply going elsewhere. There’s no guarantee, but if feasible, consider asking the owner stay for a short period of time during the transition process. This happens often, and giving you the chance to be associated with the previous owner may help with the connection versus being seen as replacing them.

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