When you join a franchise, you are expected to make...
While you might think that now, in the midst of the COVID-19 pandemic, is the worst time to start a business, it is, in fact, a good time to consider buying an existing franchise. I sat down with Matthew Wizmur, who specializes in franchise mergers and acquisitions at our firm, Spadea Lignana, to find out exactly what opportunities exist right now. Wizmur helps facilitate asset purchase agreements, and helps with commercial lease reviews and reviews of franchise disclosure documents (FDDs), so he’s tapped into the franchising market during this global pandemic.
Many people want to open a new franchise, to have a fresh start, but there are plenty of reasons to consider buying an existing franchise. Wizmur says:
“One of the main benefits to buying an existing franchise is that you already have an existing customer base to build on in the territory you are taking over.”
Additionally, he says, as the buyer of the franchise, you would not only have the support of the franchisor, but you could also negotiate with the seller for post-closing consultation for a period of time, which is typical in most transactions. That means you get access to the person who knows this specific business, location, and community best to help you succeed.
With small businesses struggling right now, it might seem counterintuitive to purchase a business, but Wizmur tells me it can be a great opportunity for those interested in franchising.
“A lot of franchisees are struggling right now, and the hit that they are taking, although seemingly temporary, may be too much for them to sustain even in the short term. This creates an opportunity to buy a franchise at a much lower price than what it had been valued at prior to the pandemic-wreaking havoc. The brand recognition of a typical franchise also would help it bounce back faster when the economy inevitably bounces back overall.”
We’re not yet seeing franchisors discount franchise fees or royalties for start-up franchises on a grand scale, so by buying an existing franchise operation, you can likely tap into that established brand at a significant cost savings. Given your own financial resources and experience, you may be able to help the business thrive in a way the previous owner couldn’t.
Naturally, you should do your due diligence before investing in any business, and you shouldn’t underestimate the current recession’s impact on the future of the franchise. Wizmur says you should first and foremost look at the financials of the individual franchised unit as well as the health of the franchise system in general. He says you should also research the general direction of that industry overall and decide if it is more of a fad or an industry that is sustainable long-term.
Like any business decision, buying a franchise is a decision you shouldn’t take lightly, nor go into alone. If you need help navigating the purchase process, Spadea Lignana offers franchisee services to help.