When you buy an existing franchise, you need to be aware of some issues and examine them closely before you make the purchase. Ask yourself the following questions to help uncover any costly and time-consuming problems:
Does the location meet your franchisor’s current standards? You don’t want to make additional investments in the business that you didn’t count on, such as remodelling, adding new equipment, expanding the parking lot, or building an addition. On the other hand, if the building is intact – and the utilities, sanitary hook-ups, and storm drains already exist – remodelling may be less expensive than building a whole new site. Be sure you know what you’re buying, and factor it into your purchase offer.
Is the business profitable? If not, are the problems fixable, and do you have the time and talent to make it all work?
If you have to make improvements to the site, how soon do they have to be completed? Does the franchisor have any financing programs to help you modernize? Are there enough years left on the franchise rights to allow you to amortize your added costs? Talk to your franchisor.
How has the franchise scored on the franchisor’s periodic review? What were the problems? Can you fix them?
Are employees willing to stay on? Are their current salaries and benefits in line with what you’re willing to offer? Do they have any labour issues that could cause you problems in your other locations?
Does the location have a good reputation with the public? If not, can you really expect that new management will be enough to regain customer loyalty? Does the current customer profile even live in the area anymore? With older systems, this is often a problem.
Does the current owner keep a list of all of their customers? Is the list current? Will they give it to you when you buy the business?
How much time remains on the real estate lease and equipment leases? Do you have the option to renew? What are the terms of the leases?
Does the owner have any legal problems that could affect the business later? Is foreclosure a possibility? Does the government hold any tax liens against the property?
Is anything happening in the area – such as a new road under construction or a new competitor – that could lessen the franchise’s performance? Do at least the same amount of site due diligence as you would for a new store – title, survey, environmental and so on.