A franchise can be a great way to start your entry into self-employment -- and strong income. Yet, there are still risks -- such as with site locations and hiring employees -- and lots of upfront costs.
But there is another approach; that is, purchasing an existing franchise (which is known as a "resale"). What are some things to consider? Well, let's take a look:
Track Record: With some due diligence, you can determine whether a franchise is successful or not. Besides getting the financials, you can talk to customers as well as vendors.
Turnaround: What if the franchise is failing? Yes, this can be an opportunity to get a business on the cheap. But, of course, this can be risky. Do you have the expertise to make the changes to get the business on track?
Keep in mind that turnarounds are often much tougher than you might expect.
Valuation: It's likely that the franchise owner will be running various personal expenses through the operation. Thus, as much as possible, try to exclude these items. The goal is to come up with the real profitability of the company.
Next, you need a way to value these earnings (assuming you think they can continue). This is usually done by applying a multiple. For example, a Subway may fetch 4 times cash flows.
Where do you get these multiples? Well, there are some books on the topic, such as The Business Valuation Book (with CD-ROM)
. You can also get the help from a business broker (the largest operator is VR Business Brokers).
Finding Franchises: There are several websites where you can find franchises for sale. One good resource is BizBuySell, which has an extensive directory.
Fees: There may be a transfer fee (which could be hefty). So, early in the process, get the franchise agreement. And, of course, it's a good idea to have an attorney help out with things.
Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements
. He is also the founder of BizEquity.com., a valuation website.











Reader Comments (Page 1 of 2)
8-25-2008 @ 7:15AM
Matt Schroder said...
I was told that Sunbelt Business Brokers was the largest brokerage firm in the country? You article says it's VR ?
8-25-2008 @ 8:44AM
Mike Shaw said...
What about Dunkin Donut Franchise? Please give me your opinion
8-25-2008 @ 12:10PM
Barney Greenbaum said...
Buying or starting any business or franchise has a risk associated with it. You want to make it a "calculated risk"
The most important factor I feel,is does the business fit your lifestyle goals? How will you be spending your day?
Easier to get the true numbers put together on a resale.
8-25-2008 @ 9:55AM
Lester Stark said...
For people that wish to be independent, a franchise ready to go business is a great way to go. Eventhough the books look good you must be ready to go to work. With these hours, and I do not mean 8 hours a day A person must have the ability to cover up being tired and witheveryting that goes with that. Your personality must be of a super-person dealing with not only employees.suppliers,insurance people,maintance contractors,accountant,health Dept,City or county officials and whoever. If you are not this SUPER-PERSON, Go another direction.
8-25-2008 @ 10:48AM
hank said...
Getting into a franchise deal with this economy? Surely you jest. That could be the WORST thing anyone could do right now. It isnt the time for that. maybe 2012 or even 2013 would be a better time. By then there will be the business survivors still standing the new president has his 1st term in. With all the turmoil of whats going on in the U.S., it would be like throwing your money out the window at 70 mph.
8-26-2008 @ 9:30AM
GFine said...
You can still purchase a franchise and be successful if it is the right franchise. You must do extensive research and test the waters but it is truly possible to thrive as a entrepreneur even in these trying times. You must know what your doing and you can win. There's always opportunities out there, even during recessions. Scared money never got anyone anything.
8-25-2008 @ 1:03PM
Randall Barondess said...
Resale Franchises are not a good idea at this moment. Most resale franchises are on their 2 or 3rd options in Leasehold. With bare minimum CPI increases of 12% every 5 years, and some as high as 15% every 5 on National franchises, the base rents have taken most if not all of the bottom line. Take a look at retail price increases in the same period, vs. rents. Thats your margin. I am a business broker with 14 offices in Ventura County, CA. Then, take into account that a tremendous amount of strip centers have been sold over the past 10 years and assesments have increased the tax base significantly. This forces those NNN CHARGES through the roof. .60 to .70 per square foot is not uncommon for high traffic strip malls. Franchise investments were great 7 to 10 years ago when they were growing like crazy. But now, the operators are starting to feel the pinch and loose the profit. People would be better off being original and keeping the profit rather than turning it over to a franchisor and the landlord.
8-25-2008 @ 4:45PM
TOM said...
TIMES ARE TOUGH,IF YOU SAW IT COMING LAST YEAR IN LATE JULY,AND HAD YOUR MONEY IN CASH,IT WAS BUYING TIME,BUSINESS,HOMES,OIL STOCKS GOLD,ECT,IF YOU WERE PREPARED,IT WAS TIME TO GET GREEDY.
8-25-2008 @ 6:18PM
Big scotty said...
was thinking of doing a firehouse subs out here in salt lake city,utah in snow base cause the winter time comes everybody will want something really good and hot and will fill u up at the same time or doing a resturant/night club
but intailes a liquer license and all the hassle too of promoting and stuff and employees im defantly a people person love all types of people ...... dunkin donuts would be a good spot for the onkers mnig the pigs/cops lol j/k
8-25-2008 @ 10:35PM
atieh said...
Owning a franchise its just working for some one else with all the rules.
8-31-2008 @ 2:23PM
Kdub said...
Hey people, read Randall's comment, He is in the biz. I own my own company,with this economy...I would not open a new or buy someone elses. Do you sell your car because it works great and is dependable ? Why would you sell a thriving dependable biz? why would anyone? Like randall said " THE COST OF EVERYTHING IS UP ! And keeps going up
8-31-2008 @ 5:21PM
David Salerno said...
For anyone to even CONSIDER a franchise at this time needs to get their head examined. Why would anyone throw their money into a franchise when you are still basically working for someone else, with their rules and regulations. ANY business that is for sale is being sold for a reason and it's not because the owner is making so much money he just doesn't want to do it anymore! The one exception might be CHICK FILLET, a christian based company where you can still purchase a franchise for 5k. and have Sundays off!
8-31-2008 @ 9:19PM
Ron said...
David you obviously have never been to a Dunkin Donuts recently.
9-03-2008 @ 8:22AM
Gfine said...
David doesn't have a clue about business and that's why he'll always be working for someone the rest of his natural born life. He'll never be a success because he's the type that's always running scared and will never take a chance in becoming successful. He's the safe type. Just take a job and hopefully, he won't get fired.
9-13-2008 @ 6:37AM
MyKisa said...
Try an MLM for a franchise that does not require so much start up...same dedication and work, but even the little guy can make it big
9-13-2008 @ 7:24AM
david said...
yes go for it , you only have one life ,and it's only money. Just try to keep a money kitty put away, and if times get rough their are company that will help you bail out. try to find investor
good luck go for it
9-13-2008 @ 8:22AM
Clem Gigliotti said...
I would submit that there are even more options, like a home based business. There are numerous legitimate business models that affords the same opportunities of a franchise with significantly less barriers to entry, but the same income potential. I talk about it more in my blog: www.uniquehomebasedbusinessopportunity.com.
9-13-2008 @ 10:07AM
frank said...
Seriously, if a fanchise is successful it wouldn't be up for resale.
9-13-2008 @ 11:15AM
D&K printing said...
any one know how subway doing they a good buy or not
9-13-2008 @ 11:42AM
KT said...
Submarina is a better option if you are looking at a sub shop Franchise.
www.submarina.com