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  • #990537
    Ugly_cat
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    Hello Entrepreneurs,

    After many years in the corporate world I’m currently looking at a career change and to follow my heart by running my own business.

    I’ve been looking at several options but currently I’m investigating buying an existing signage franchise.

    The business seems to have been significantly under performing and this has been related in the companies profit/loss. The franchisors are ex-franchisee’s, every other franchisee I’ve spoken to has spoken very well of them and remarked on the groups improvement since they came on board ,this has given me quite a good feeling about the business. I have agreed a sale price with the existing franchisee and will now be undertaking due diligence.

    I will of course be contacting an account and solicitor for advice, however I was wondering if anyone had any other general advice on the due diligence process (questions to ask, what to research etc.), buying and putting a price on an under performing business or the signage business in general.

    Thanks everyone for your help

    ugly_cat

    #1177406
    Anonymous
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    Hi Ugly_cat,

    I’m not the right person to answer your questions, but did want to give you a warm welcome to the forum.

    I have my fingers crossed that there’ll be some folk along to share their experiences with you soon.

    Good luck for your investigations,
    Jayne

    #1177407
    MD Clean
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    Welcome,

    The P&L’s are one thing, but also ask to see the bank accounts where you can check actual income and expenditure,

    Aslo look for signs of preparing a business for sale – people will cut expenditure to make the top line look better than it is for example, they may drop or reduce insurance (an expenditure you will have when you run the business) and myriad other things like cap-ex.

    #1177408
    bb1
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    One thing we did when looking at buying a franchise was to get some of your random friends to go in and be interested in this case in having a sign done, see what the reaction is from the current owner and or staff. Is it the kind of service you would wont converyed to your customers.

    i know most will say but a new owner will change any bad work practices, but if the current owner is failing because of poor service or other customer related issues, they have already built up a heap of badwill towards your new business, and customer who have walked away before will not be back even for a new manager. Also as we all know the old saying, give good service and people tell one person, give bad service and they tell 10. So that is the one bif area you need to look at for a franchise or independent business. What has gone before you.

    #1177409
    PRO
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    Cashflow is king. go through the bank account statements during DD with a fine tooth comb and get your accountant to do so as well.

    #1177410
    MissSassy
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    Hi and welcome,

    Why is it under performing?

    How are you going to make it perform?

    Do you need to buy an under performing sign business or can you just begin your own from scratch?

    #1177411
    Anonymous
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    Hi Ugly Cat,

    The previous posts have some great advice. Especially Bert with having someone go in there as a potential customer.

    Your lawyer and accountant will do the bulk of the financial and compliance due diligence.

    A couple of additional things I suggest is:
    – Spend some time in the business to gage how it is operating and how the staff (if there are any) perform as well as what their roles are. More than one day so that you don’t get them just pretending to work efficiently because you are there

    – Checking all the plant & equipment. Depending on how long the business has been operating their depreciation schedule may have old assets listed that are not used. Doing an audit of the plant & equipment listed to what’s in the shop/factory as well as checking the condition of the equipment will give you a better understanding of the value of the assets as well as any repairs and maintenance you might incur once you take ownership

    Best of luck with your new venture!!!

    #1177412
    Ugly_cat
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    -Thank you guys for some great replies and advise, certainly a couple of things I hadn’t thought about.

    Kelly – Great questions! In answer…

    The franchisor has advised that the owner seems unfocused and gets hung up on small details which leads to poor customer service, poor systems and staff retention, in some of the previous years the business appears to have done ok, so I don’t see why it can’t again.

    They’ve tried to turn it around with him but after several months haven’t managed to do so. After spending time with the owner my gut instinct is that this is pretty true and certainly other franchisees in similar locations seems to be performing pretty well.

    I’m thinking with myself concentrating on sales and defining processes/systems (largely from the franchisors advice) and a lot of hard work the business can be turned around.

    I have no business experience so I think I’m happy to go with a franchise where I can get support and direction, otherwise I’m not sure where I’d start. Certainly, key for me is the franchisor, who as I said I’ve only heard good things about and again my gut is quite comfortable with them.

    I know I’m certainly paying way over the odds for the business based on its p/ls, I guess what i am paying for is the opportunity, the cost would be akin to a new set up cost which gives me some comfort, once I’ve spoken to my accountant I’ll have a much better idea.

    Hope I’m not sounding too naive!! No need to be kind, all thoughts most welcome!

    Thanks again everyone

    ugly_cat

    #1177413
    MissSassy
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    You know the saying “we don’t know what we don’t know” and sometimes it is an educated guess. You can take all the precautions in the world and still not be successful.

    Just gain as much advice as you can before you leap and check just how much support you do actually get as a franchisee – this can vary a lot.

    #1177414
    ThexArm
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    Franchisors are very good sales people. Just don’t go by what they tell you. Also don’t just call the franchisee that they tell you to call to enquire about business. There would be about 20% to 30% high performers and rest of others would be trying to meet the ends. Almost all franchise agreements are made to protect franchisor’s interests. If a franchise is not doing well that means there would be something. Not just the problem with franchisee. Why would franchisee not put effort to make it work after investing money into it??? You may get other side of story talking to franchisee himself?? Numbers and averages doesn’t tell you much about a franchise business. Because it varies a lot between best performing to worst performing.

    If you don’t have business background I strongly suggest you not to jump the gun. You don’t want to invest in not performing franchise and burn yourself. As MissSassy said, you are better to start with a clean plate and put all your hard work growing it.

    #1177415
    arrowwise
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    Ugly_cat, post: 206762 wrote:
    -Thank you guys for some great replies and advise, certainly a couple of things I hadn’t thought about.

    Kelly – Great questions! In answer…

    The franchisor has advised that the owner seems unfocused and gets hung up on small details which leads to poor customer service, poor systems and staff retention, in some of the previous years the business appears to have done ok, so I don’t see why it can’t again.

    They’ve tried to turn it around with him but after several months haven’t managed to do so. After spending time with the owner my gut instinct is that this is pretty true and certainly other franchisees in similar locations seems to be performing pretty well.

    I’m thinking with myself concentrating on sales and defining processes/systems (largely from the franchisors advice) and a lot of hard work the business can be turned around.

    I have no business experience so I think I’m happy to go with a franchise where I can get support and direction, otherwise I’m not sure where I’d start. Certainly, key for me is the franchisor, who as I said I’ve only heard good things about and again my gut is quite comfortable with them.

    I know I’m certainly paying way over the odds for the business based on its p/ls, I guess what i am paying for is the opportunity, the cost would be akin to a new set up cost which gives me some comfort, once I’ve spoken to my accountant I’ll have a much better idea.

    Hope I’m not sounding too naive!! No need to be kind, all thoughts most welcome!

    Thanks again everyone

    ugly_cat

    It is easy to look at some one elses business and say I can do a better job. It is not until you are in the same shoes as them with the same stresses and responsibilities that one can truly judge. Some of these enterprises are dam hard slogs to make a living, even after multiple ownership changes.

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