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Just Elementary, Inc. » Business Tips, Due Diligence, Franchises » Pitfalls of Buying an Existing Franchise Business

Pitfalls of Buying an Existing Franchise Business

There are a lot of benefits to buying an existing franchise business.  However, in this post we will cover some drawbacks that pertain to acquiring an existing franchise business.

  • Having an extra party in the process, that being the seller of the existing location.  Never underestimate how much extra work it is to negotiate, and by adding the existing owner as another party to negotiate with, the complexity of the transaction increases significantly.

    McDonald's Exterior Signage

    Famous Franchise

  • Franchise Upgrades to the existing location.  Be aware that franchises often update their décor and signage, and the existing unit(s) you are looking to buy may need significant upgrades prior to your approval to take it over.
  • Less leverage to negotiate with the landlord.  Since there is a tenant already in place, you will have less leverage to negotiate lease concessions.  Not impossible to negotiate concessions, but certainly more difficult.
  • The franchise transfer fee.  Often it is a little a few thousand dollars, but sometimes in the mid five figures.  Just find out what it is up front, so you can budget for it.  Of course, try to negotiate with the seller to share part or all of the burden for it.
  • How many years are left in the franchise agreement that you are going to take over and how much is it to renew it once it expires.  Also, find out the criteria for renewal.
  • Dealing with the politics of the district manager and the related franchisor approvals who may be a pain to deal with.  Many a franchisee seller that we have worked with have had problems with the franchisor’s supervisorial employees.   So do some sleuthing into the local franchise  representatives, make sure they are people who genuinely want to help you, not just be problem creators.
  • Check out internet review sites to find out what reputation the existing business has, so you know which weaknesses you have to improve, and which positives you have to maintain
  • Visit the location as a mystery shopper to check on the operation and the customer atmosphere at the business.

For More information on how Just Elementary, Inc, Commercial brokers can help you with examining franchise opportunities contact Client Care Manager Sonia Chhabra by email or call (323) 213-9193


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