Acquiring a franchise is a major commitment in terms of your financial resources, time and emotional energy. Choosing correctly can bring you financial reward in the future.
Since you may be investing a substantial part of your life’s savings, and even mortgaging your home, you need to be absolutely sure that this is the right step for you. Franchisees have a higher success rate than a stand alone business because of the support of the parent company. However, if you pick the wrong company, you could be tied to agreements and commitments that you may later regret.
When investigating franchisees, you will require answers to some of the following questions:
- Does the business match your skill set, and family needs?
- Is the purchase in alignment with your life goals?
- Will the franchise support your family?
- What is the value proposition the franchise offers?
- At what stage of the Franchise system life cycle is the business?
- What is a fair valuation of the franchise?
- Is the franchise affordable considering the debt/equity ratio?
- Will it produce adequate return on investment, risk versus reward?
- Is franchising the right type of business for you to enter?
- Which type of franchise is best for you, which business sector, what size of financial investment, and what degree of freedom is offered by the franchise agreement?
- What business structure is most suitable?
- Which specific franchise should you choose?
- How do you negotiate agreements favourable to you, with the franchisor, your financial institution and the property owner?
We offer a complete range of accounting and income tax services to franchise businesses, which typically include:
- Advice and assistance in raising and structuring the finance required to initially purchase the franchise
- Guidance on the most appropriate business structure to maximize tax relief on the up-front costs
- Proactive tax, finance and business advice
- Selecting the most appropriate accounting policies for amortizing the initial franchise license and the associated other start-up costs
- Business support (bookkeeping and payroll)
- Business turnaround advice
All franchise business owners planning to set up a franchise business should start the process by preparing a business plan. A business plan forces the business owner to apply some ‘discipline’ in documenting a strategy for the business. Some of the many issues you may wish to document in your business plan include:
- Your vision or mission statement
- A history of your business and business successes to date
- Identification of stakeholders and staff members and their roles in the business
- An analysis of your market
- Support, knowledge and training available from the franchisor
- A financial analysis, including a financial forecast and a list of assumptions on which your forecast is based
- A summary of your business strengths, weaknesses, opportunities and threats
- A list of organizational and operational issues for resolution
- A short list of action tasks to resolve and implement in the business over the next twelve months
The business plan may also contemplate how and when the business owners may exit the business at a future point in time. The business plan will become a handy document to provide to a bank when a franchise business owner seeks finance from a bank.
Buying a franchise is a variation of buying a business. It can be seen as an attractive alternative to launching your own business, saving you many of the start-up headaches. Establishing a franchise comes with its unique set of challenges too. The advantages to buying a franchise include:
- Product or service is generally established and may have a national reputation
- Structured marketing program developed by professionals
- Sophisticated operation structure and training to virtually guarantee operations
- Established cost structure making it easier to manage the business
The disadvantages to buying a franchise include:
- Generally high cost of location acquisition
- Difficulty finding appropriate location
- Lack of operating flexibility
- Ongoing financial obligation
- Not all franchises offer the same degree of expertise in support
Acquiring a franchise is a complicated transaction and requires advisers who have experience in franchising. Generally the purchaser does not have a lot of negotiating room to change the terms of the deal. This means it is even more important to be aware of all your obligations to the franchisor prior to committing to the transaction.
We can help you sort through the endless stream of information and guide you in selecting the franchise that’s right for you.
For further information regarding our services we recommend you review Acquiring a Franchise, or browse through the many articles that Joe has written in the Resource Library.
Contact Rob to arrange a free, no obligation consultation at 519-429-3800