Step-by-Step Guide to Buying a Franchise
Step 5: Find Specific Franchise Locations for Sale
Now it’s time to locate specific franchises that are for sale. Here are some tactics that will give you the best opportunities.
Create a Buyer’s Profile
Create a buyer’s profile and share it with people who can bring you potential deals to review. The individuals include the franchisor, business brokers, accountants, lawyers, and other franchisees. This one-page profile should contain your background, type of franchise wanted, the names of any potential franchisors you’d consider, the geographic areas you’re interested in, the maximum price you’d be willing to pay (state about 90 percent of your real number and indicate that you have all cash).
You also want to give the criteria for existing franchisee locations you’ll consider, including the minimum number of years the location has been in business (at least three) and minimum required historical income.
This profile will help filter out most of the junk you’d otherwise receive. If anyone brings you deals that are significantly outside your stated written criteria, immediately reject the deal and don’t work with that person any longer.
Contact the Franchisor and the Area Developer
After you’ve created your buyer’s profile, contact the named franchisors and their area developers if applicable. Typically a franchisor grants an area developer the right and the obligation to develop a number of outlets in a certain geographic territory.
Sometimes the franchisor will have a list of locations that are for sale, and the area developer will know of owners who wish to sell their franchises. Remember, though, that they’re much more motivated to sell you a new location, so be patient and keep digging for the information you need. And be careful — area developers could try to steer you toward locations that are struggling or overpriced.
Contact Business Brokers and Businesses-for-Sale Websites
The next step is to contact a number of business brokers. Unlike in residential real estate, many business brokers don’t cooperate, so be sure to discuss your criteria with a number of brokers. Also check out the Web sites that specialize in listing small businesses for sale, like BizBuySell.com. Remember, you may not see the name of the franchise you’re interested in, but that doesn’t mean they aren’t listed. Many franchisors forbid their franchisees from using their franchise name in listings (another reason that franchises are hard to sell). For instance, a Subway for sale might be listed as “World’s #1 Sandwich Franchise.”
Contact Franchisees and Ex-Franchisees
Locate the franchise stores in the geographic area you’re interested in and visit the stores in person. It’s likely you’ll be able to meet the owner, but if the owner is absent, don’t tell the staff that you’re interested in buying the location. When you meet with the owner, share your buyer’s profile and engage in a discussion about buying into the franchise. Even if a store isn’t listed for sale, the owner may express an interest in selling, and/or they’ll indicate which other owners may be interested in selling. This could be a great way to buy a location that’s under the radar.
Also be sure to contact ex-franchisees listed in the FDD. These ex-franchisees may be able to give you insider information that you would otherwise find difficult to obtain, including current franchisees who want to sell. Plus you’ll probably get some good information about how the franchise operations really run.
Contact CPAs and Attorneys
Be sure to contact CPAs and business attorneys and share your buyer’s profile with them. They could have franchisee clients who want to sell or can point you to other professionals who may have inside information.
Consider Small Towns
Finally, be sure to consider franchises in small towns. Franchise operations in these areas are often extremely difficult to sell, which means their prices may be lower than in more densely populated areas. It also means that there’s less likelihood for serious competition, and generally rents and labor costs are lower, so average profitability could be significantly higher. If you’re geographically flexible, this may be the best way to buy a franchise.
Return to Step 4: Pick Two or Three Franchises to Pursue