Buying A Franchise Business in Florida
When it comes to starting a business, franchises offer business opportunities perfect for those that know they want their own business but simply do not know where to start. After all, when one starts their own business they need to have the following five questions answered:
1. Do they have an original a business idea?
2. Can they determine if there is a marketplace?
3. Would they know what to charge a customer?
4. Can they create a revenue proforma and would that support their current lifestyle?
5. Can they market this business?
When you buy a franchise most if not all of that work has already been done for the perspective buyer. All they have to do now is figure out what franchise operation they would like to own.
As business brokers we see a lot of great franchises, but we also encounter a lot of franchise owners that are disappointed with what the franchises they bought and want to sell their franchise. Below are some tips that we recommend to buyers when looking to buy a franchise in the Florida area. These tips are based on the business broker perspective of what our business owner customers recommend and what they say they would have done differently if they were to do it all over again.
Tips to Buying A Franchise in Florida
1) Approach buying a franchise the same way you would approach buying an existing business for sale.
As business brokers, we see many people that entered into a franchise and did absolutely no evaluation of the industry or the market place. They saw a franchise that they liked and decided to buy in. A buyer cannot solely depend on the franchise for all of their information. Buyers need to independently evaluate costs, leases, buildouts, structures, fees, taxes, financial proformas and so forth.
2) Comparison Shop.
If you’re looking to buy a franchise in a particular industry there are bound to be several other franchises in the same industry. Look at multiple franchises. Use the services of a franchise broker if need be to help you shop and evaluate. We also recommend comparing buying a franchise business start up to buying an already existing business for sale on the market. Just the other day we spoke with someone who spent $500K on their franchise start up and after a year they are just breaking even. On our market we could have sold them a business for $500K netting $246K a year which would have yielded them an immediate income upon their purchase. We encourage buyers to compare franchise opportunities with one another and then compare those franchise start up opportunities to existing business for sale opportunities on the market.
3) Perform Actual Due Diligence and Speak with Other Franchise Owners.
When business brokers sell businesses, there is typically a due diligence process where business buyers can evaluate the businesses sales, records, and potentially the market place. Many franchise business buyers tend to ignore this step simply because franchises are unable to predict how each franchisee will perform. That does not mean that there isn’t research that can be done on the franchise and the industry. Find out what businesses in the industry are charging and see what kind of operation they have. We would encourage you to speak with existing franchise owners in that franchise to see how they like the franchise. Ask what about what the franchise does to help, ask what role the owner performs in their business and if the cost of starting their franchise matches what the franchise is quoting you.
4) Run The Numbers.
Running the numbers is one of the most important things a buyer can do when buying a franchise or an existing business. The process is simple. Estimate how many customers are expected and how much revenue is expected to be brought in by each customer. Then take those numbers and compare them to the expected costs of the business including: rent, taxes, credit card fees, payroll, and costs of goods. See what that rough number is and ask yourself if the scenario makes sense. For example, if you buy a yogurt franchise and your profit is $1 per cup of yogurt sold and each customer typically just gets one, how many do you have to sell to make $5,000 in profit a month? That’s 5,000 customers. Ask if yourself if that is a doable number. Even if it’s doable, will the customers come right away or will it take a few months? If you’re hoping to net $100K in profit, calculate how much business you would have to do in order to make that happen and ask yourself if it sounds realistic. Often times, it’s a big eye opener for buyers. One also wants to estimate if that amount of revenue they are expecting can afford to pay the expected rent and other expenses.
5) Know What Your Role Will Be In Running The Franchise.
Has the franchise told you that you can easily be an absentee owner? Most of the franchise owners we meet have found that that they are not very profitable unless they are involved in the franchise business regularly. That does not go for all of them, but for most small franchises that seems to be the norm. Absentee ownership is possible, but it typically takes a large chuck out of the profitability of the business because of extra payroll for management and efficiencies lost due to lack of owner oversight. If it’s a smaller franchise it might difficult to make a larger profit making absentee ownership difficult. Remember an operating franchise business is not piece of commercial real estate where one just collects a rent check once a month, it is a living and breathing entity that has to be managed and operated continuously by someone.