Carol Davis assesses whether buying into an established business poses an element of risk or a foundation of future success.
The risks of taking over an established business are considerably lower than starting from fresh. Around two in five franchisees interviewed for the bfa/NatWest Franchise Survey 2008 had bought a resale unit, rising to three in five who started over the last two years.
Resales have a cashflow from day one, a huge advantage when poor cashflow is a prime cause of business failure. They also have a brand presence in the marketplace – and because they are already trading, the customers, staff and premises are already in place. Prospective franchisees still need to do their due diligence, and negotiate for an accurate valuation based on the levels of pre-tax profit the business generates.
Most franchisors welcome the arrival of a new franchisee as an injection of fresh blood with all the drive and enthusiasm the right franchisee can bring. “Because you’re new to it, you tend to give it so much more than a franchisee who is ready to move on,” says Lisa Desborough, Musical Minis Buckingham franchisee who waited years for the right resale to come up and now says she wouldn’t have it any other way.
WHEN TEACHER Jayne Stanton started looking for a business venture that would combine her teaching experience with her love of music, she naturally turned to franchises offering children’s music classes – and was delighted to discover that Musical Minis had an up-and-running business for sale in her area.
She went along to classes and shadowed the outgoing franchisee for six weeks. “I got to know the parents and the children, as well as getting to know how the business worked,” she says.
She also did her due diligence, looking in detail at the business and the profits it had made over the previous five years.
The valuation was based on past profits and she felt there was little need to negotiate – so she became Musical Minis East Midlands East franchisee.
Even with all the help of the outgoing franchisee, she still found that there were new skills to be learned, “Marketing was perhaps the most demanding, though I learned quickly,” she says. She has since been setting up new classes, as word of mouth fires the success of the business.
And the support of a good franchisor was just as vital as for a new territory. “Head Office are always very helpful indeed, if I have a query or a problem. There are huge advantages of buying a resell, including an established customer base and profitability from day one. I’d recommend it to anyone.”