Buying a Franchise Business

There are several advantages to buying a franchise business over buying a business from an independent entrepreneur. The independent business seller will have built their business around their own vision and personality, whereas the existing franchise business represents a corporate "brand."

The franchise seller will, of course, have established the reputation of the business in the community served, but if it is a national franchise, the corporate reputation is what is most important.

Let's take a look at the Pros and Cons of buying an existing franchise business:

Pros

The business you are buying is already established and has both a sales and cash flow history.

You can often negotiate with the seller to carry back a note on the purchase price. The amount of carry-back can sometimes be over 50% of the purchase price. The seller knows the Franchisor has done a thorough financial check on the buyer, so they feel more comfortable in extending credit to the buyer.

You will be buying the business where it is currently located and you will not be limited by the Franchisor dictating where they want you to build a new franchise.

The Franchisor can always provide basic guidelines regarding how to value a franchise resale, making this part of the buying process much more simple.

The Franchisor usually provides extensive training on how to successfully run your business—something you won't get from an independent business owner.

Cons

When buying an existing franchise business, the Franchisor must "approve" the new buyer. This usually includes a background and credit check…and they have the last word on whether you, the buyer, can own one of their franchises.

The business you are trying to buy will usually be more expensive than if you started a new franchise from scratch. You will also be paying a higher price for the established reputation of the franchise business when compared to a small independent business.

You will likely be limited in what you can do within franchise rules. Expansions into other products or services may not be allowed.

When buying an independently owned business, the negotiations are between buyer and seller and can be anything the two agree on. When buying a franchise business a third party (the Franchisor) is involved and can sometimes make some pretty onerous demands.