Legal Tips for Buying an Existing Franchise
There are some benefits to buying an existing franchise as opposed to another kind of existing business, but you must be informed about what to look for and what it might mean for you directly. You need to balance your short term and long term goals before committing to working with someone to buy an existing franchise.
Some of the best reasons to consider an existing franchise purchase are control offered, predictable cash flow, and lifestyle desires. There are, however, some considerations and drawbacks that you should be aware of before you move forward with a transaction.
Pros of an Existing Franchise Purchase
One of the biggest advantages in working with an existing franchise is that you may have better stability and predictability than if you went with an established company of some other type. This is because theoretically you have more comparative data to review so you have a strong sense of what you are getting into. You can review data from the various franchise locations so that you have a full picture of what you are looking at.
As a result of this data, you might be able to determine how stable the business is likely to be and where the ebbs and flows are located on a seasonal basis, if this is a factor. Bear in mind that this data is only helpful if the company has been around for some time.
As an added benefit, the learning and training curve is also not as steep with a franchise. This is because the franchisor, who has an obvious desire to help the new buyer succeed, will likely provide the majority of training needed after the sale concludes. This is not something you can count on with the purchase and sale of another business.
While there are definitely clear upsides of going with a franchise purchase, you also need to know about some of the potential challenges you could face as the new owner. The higher predictability and lower risk does not come without a cost.
One of the first potential challenges is that you cannot conduct a unilateral expansion without the express approval of the franchisor. If you have the desire to be an entrepreneur with a lot of say over how expansion and evolution of the company happens, you’re undoubtedly going to be frustrated with your purchase of a franchise. You might want to view your role in a franchise as that of junior partner. While you get those benefits mentioned above of stepping into an established business, there are also some downsides.
In order to succeed with a franchise, both the franchisor and the franchisee must recognize their interdependence. Without this, both will struggle to understand the relationship and conflicts are likely to arise. Carefully analyze the franchise itself as well as the role you would be playing in it by looking over the franchise agreement with your attorney in advance of a transaction.
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