Franchise businesses can be a great business to buy, especially for first time business owners. At BayState Business Brokers, we have sold many types of franchises, and Principal Sarah Grossman pinpoints the top reasons to purchase a franchise.
- There is a Proven System in Place – Franchisors spend a lot of time and resources perfecting their franchise “model”, which is a plan for success for their franchisees. If a franchisee works hard and follows the plan, they will likely succeed. You as an owner won’t have to spend a lot of time and resources testing different sales and marketing techniques for your business since the franchisor has already done that work for you. You can really hit the ground running day one.
- There is Support from the Franchisor and other Franchisees – When you succeed, the franchisor succeeds, so they are incentivized to provide the support you need to be successful. They typically have area reps who can help you in your market, and have comprehensive franchise training at their offices prior to you taking over the business. Many franchises also encourage local co-ops, whereby franchisees pool their resources for local advertising, and share best practices.
- You Get Name Recognition Day One – Think about how much better McDonald’s does versus Joe’s Burger Joint? It is a well-known brand with name and logo recognition. When a customer sees a McDonald’s, they know what products and quality they are getting, which drives traffic to the business. Franchises also typically spend a considerable amount on national advertising to promote the brand, and can pool the resources of all the franchisees to purchase expensive advertising you could not purchase on your own.
- Many Can be Financed with an SBA Loan – Many franchises have been reviewed and approved by the Small Business Administration and can therefore be financed by local banks. In 2018, the down payment requirement will drop to 10% from 20%, making it more affordable to buy a business. You can visit the Franchise Registry online at https://franchiseregistry.com/ for a list of franchises which are approved by the SBA.
- More Trust in the Financials – Since the franchise puts systems in place to track sales of their franchisees for fee deductions, typically the financial reporting tends to be better with franchises. While most franchisors will not verify the financials for you, the Seller (franchisee) likely has reports that can be pulled from their franchise software reporting their income. This can be helpful to compare against the financial statements or tax returns to verify the income.