There are many franchises for sale in todays fragile economy and although we assume the franchise must have problems thats why its for sale may be completely wrong. This is a great opportunity for you to by a business that is a good money for value option and you may just get a deal that is perfect for you.
You should however understand a few things before buying the existing franchise to ensure there are no surprises or unplanned expenses that you may come across .
1.Why is the franchise for sale?
If the owner is ready to retire, immigrating or is ill which can be seen as reasonable explanations then a new spur of young energy may just be what the franchise needs to boost sales and profits.
This is analysing whether the physical location of the franchise. Changes in urbanisation may have lead to the demographics of a location changing that it may no longer be viable for a specific franchise in that area. Also look into the lease and ensure there are no clauses or rent increases that are over looked. You could contact the land lord and look at renewing the contract.
Visit the franchisor to discuss change of ownership as they will approve the change. Franchisors generally have a neutral stance on the change of ownership and will advise you to ensure you are not buying the franchise at a bad price. Ensure you are aware of when the franchise needs a revamp as this can be costly.
Ensure the financials are audited and debt is paid, as well as VAT payments are up to date. Check sales by comparing income and expenditure statements with Vat returns. It is advisable to get a knowledgeable accountant to help you look over the financial statements to avoid manipulation of figures by the franchisee
5.What is it worth?
Whether the franchise is part of a reputable franchise chain and is profitable will determine whether the bank will give you a loan possible even up to a 50% loan. A formula to determine the value is 4 years x NPAT (net profit after tax) the profit after tax will be multiplied by the 4 years/ 48 months then you will get the value of the franchise.
Once you have enough information and knowledge and you are ready to purchase the franchise you should however not purchase the current business entity. The business entity may have hidden liabilities and it is therefore more of a save option for you to start your own entity. You will incorporate the assets of the current franchise into your new business entity after they have been stripped from the previous one.