Buying A Franchise
LISTEN A NEW CH before you buy
Why buy a new franchise rather than an existing one? Here are 12 things to consider before you make your decision
All franchise agreements put a lot of power in the hands of the franchisor. Whether a franchisor uses that power wisely or carelessly comes down to their character. Their character will have a huge impact on your experience as a franchisee and may be the most important thing you should assess before buying a franchise. It’s also the hardest thing to assess. But you can learn a lot by asking smart questions of other franchisees and listening closely to how they answer. Ask about how the franchisor communicates and how they act when challenged or wrong, how they introduce change, how they respond to franchisees struggling under personal circumstances and how they demonstrate that they have their franchisees’ best interests at heart. Listen to what is said, how it is said and what is perhaps glossed over.
in that franchise system. Franchising is a powerful way of doing Michael Bright business, but the same forces that make Specialist Franchise Lawyer franchising great also create vulnerability 021 2666 395 and risk. We know what works, what doesn’t, and how to respond to the issues that arise. We help with: · Assessing franchise opportunities · Advising on franchise agreements and other contracts · Franchise sales and purchases · Dealing with difficult situations
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An existing outlet might seem tempting – it will have an established customer base, positive cashflow and, if it employs staff, people in place who can help as you get to grips with running your own business. But buying a new franchise also offers many benefits.
1. Price
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When you look at buying a franchised business, you’ll often have two options – buying a brand-new location that you’ll need to set up from scratch, or taking over an established business being sold by an existing franchisee.
In most cases, a new franchise will cost less than an established one because you will not be paying a premium for ‘goodwill’. Goodwill is the reputation that a business has built up – the factor that has customers coming through the door and results in proven sales performance. If a business is profitable, you can expect to pay a significant amount for goodwill over and above the value of the business’s equipment, fit-out and other assets. A new business may not have those sales (yet), but bear in mind that a franchise with a well-known brand will already have goodwill in a new location even before it opens its doors. That’s why you get queues outside a new McDonald’s, or why companies like Kitset Assembly Services or V.I.P. can provide new franchisees with work from their very first day.
2. Potential When you buy an existing business, it may already have got as good as it’s going to get. The seller might tell you about all the potential it has, but if it’s so easy to grow, why haven’t they already done it? Unless you’re buying a business that has been poorly-managed and are confident that you have the skills, energy and ability to turn it round, growth isn’t always easy. When you buy a franchise unit in a new location, you may start with a turnover of zero but you have massive potential. Benchmarking should enable you to see what is realistic in any particular location and you’ll have a lot of support from the franchisor to help you achieve it. Listen to that advice, put it into practice and growth will follow. Franchise New Zealand
Summer 2024
Year 32 Issue 04
