Connect with us

Researching a Franchise

You Should Know Why It’s Being Sold

You first need to determine whether you think the future performance will be positive under your ownership.

Jeff Elgin

Published

on

franchise-sold

Here are two types of franchise units that are offered for sale. As we’ve already mentioned, the first group consists of successful operations that are making money.

The other group consists of units that are not successful and are either losing money or barely making ends meet.

In either case, you first need to determine whether you think the future performance will be positive under your ownership.

If the answer is no, or you’re uncertain about potential risk factors, your best strategy is to forget the resale. The risk is just too great.

We-recommend-tickWe recommend: What a Franchisor Wants

But if the answer is yes, and the business is currently successful, you’ll have a fairly easy time dealing with pricing, since you have existing earnings to work with.

The best valuation method is to use a multiple of the net cash flow you will receive from the business.

Figuring out net cash flow

Net cash flow is the difference between the revenue of the business and the necessary business-related expenses required to produce the revenue.

You should have access to the historical financial statements of the business to derive this number.

Most business owners run expenses through their business that aren’t really required to operate the business. These can include company cars or meals and entertainment.

There might also be extraordinary salary costs associated with the owner. Take the net income of the business and add back these unnecessary expenses to determine the true net cash flow you can expect.

The price of this type of successful business should be about two to five times this net cash flow number.

The more stable and dependable the cash flow, the higher the multiple that’s reasonable for you. The multiple is also higher when the trends of the business growth are positive, rather than flat or negative.

If it’s not making money

selling-a-franchise

The second type of resale, when the business is not currently performing well, is more difficult to price.

The existing owner will always have many good arguments about why the business isn’t performing, but ultimately it comes down to whether you are convinced that a simple change in ownership will fix the problems.

About the only time this is true is when the existing owner is not operating the business according to the system designed by the franchisor.

If you have confirmed that most or all other franchisees following this system are doing fine and have determined that there are no other problems related to, say, a bad location, then you can proceed with some confidence.

In this circumstance, you are looking for a real bargain. If you’re not going to get a great deal on the resale, why bother? You can always open a new unit with this franchise as an alternative to buying this resale.

We-recommend-tickWe recommend: Understanding the Terms of Agreement

To evaluate the resale price, start with the total cost to open a new unit in the system, including all the marketing costs and operating reserves necessary to operate a new unit until you reach the average break-even time on operations.

From this figure, subtract a liberal allowance for the money you need to invest in marketing and operating expenditures to get the resale unit to break-even.

Also subtract a liberal allowance for any infrastructure investments you feel might be necessary to get the physical plant and employees of the unit up to snuff.

The difference in this calculation represents the absolute maximum price you should even consider paying for this unit.

A reasonable person would almost certainly discount this difference substantially to offset the risk associated with buying someone else’s problem.

If the seller is not happy with this method of valuation, that’s okay. You’re the one who’s going to have to live with this purchase, and you want to walk away from this type of resale unless it looks like a very strong opportunity to you.

We-recommend-tickWe recommend: Financial Facts you Need to Know About Franchises

Feel free to tell the seller to try to find a buyer at a higher price and call you back if that attempt is not successful.

There’s no line of people waiting to buy unsuccessful units, and you’ve got time on your side.

Jeff Elgin has developed a consulting system that matches pre-screened, high-quality prospective franchisees with the franchise opportunities that best fit their personal profile.

Continue Reading
Advertisement
Click to comment

You must be logged in to post a comment Login

Leave a Reply

Company Posts

How To Become A Hi-Q Franchisee

Are you looking at investing in a tyre replacement and service industry? Look no further than the Hi-Q franchise.

HI-Q

Published

on

By

grosvenor-crossing-hiq

Established in 1999, Hi-Q is a successful and diverse multi-product, multi-brand leader in the tyre replacement and service industry with a network of over 130 franchisees nationwide.

the-one-you-can-trust-visual-2

With the support of international tyre giant Goodyear, Hi-Q has established a solid reputation of ‘the one you can trust’, and the Hi-Q approach and philosophy is embedded in this.  We have the trust of our customers, our network and our suppliers – that’s why you can trust us to take you and your business to the next level.

When you’re working with people’s safety, trust forms the most significant part of the equation

Hi-Q introduced the original and innovative TyreSurance initiative – the only aftermarket tyre damage guarantee product that backs the consumer no matter the brand of tyre.

tyresurance-visual

Related: We Want To Invite You To Join Us On The Hi-Q Journey And Become A Franchisee

Each Hi-Q Franchise offers a broad range of brands within the different product and service categories that customers know they can trust, and at prices they can afford. Product and services include tyres, exhausts, shocks, batteries or brakes, wheel alignment or balancing, and a 10-point safety check.

hiq-franchise-tyres

hi-q-interior-store-visual-4

We have identified areas of opportunity to extend our Franchise footprint growth.

If you are looking to join a new franchise and you share in our values and vision, we would like to hear from you.

For further information on how to become a franchisee, call us on +27 11 394 3150

Continue Reading

Researching a Franchise

Col’Cacchio – Benefits Of The Franchise Model

Six key benefits of the restaurant franchise model – and what to look out for when considering a franchise.

Russell Otty

Published

on

benefits-of-the-franchise-model

For investors looking to the restaurant industry and considering a franchise knowing it has a proven track record and is therefore possibly a lower risk, there are a few key things to be aware of about the benefits of the franchise model, which if investigated, can also point to a franchise that is not for you.

Russell Otty, Chief Operating Officer of the Col’Cacchio Group, shares some of these key benefits and indicators of whether a franchise is for you:

1. Making the cut as a franchisee gives you the confidence that you are making the right decision

You may think psychometric testing, three days in a restaurant following a franchisee around, and a panel interview with the senior management of the franchisor, is a bit over the top, but the franchisor that puts you through your paces and assesses your ability and commitment to running the business, is doing you a huge favour and may even help you see this is not for you. It goes both ways, and after an intense courtship, you should know if you want to try a long-term relationship.

Related: Col’ Cacchio: A Passion For Pizza

2. Assistance with location selection and negotiation of the terms of your lease

One thing you can do to limit your risk is to not open a restaurant in the first place if your rent is not going to be reasonable or you simply won’t get customers through the door. The franchisor will vet and approve the site – they will have extensive insight into what has worked or not worked location-wise for their brand, and can assist you to weigh up the area and it’s potential to attract customers.

The commercial terms of a lease is very important – you can’t be too ambitious about turnover targets, and having the backing of a franchisor can be beneficial if a landlord becomes unreasonable.

3. Staff training and development tools on hand

Consistency is important with restaurant franchises, as a customer visiting a brand anywhere in the country, goes there knowing exactly what they are going to get. This is best achieved with solid training, perhaps access to resources such as training videos, and regular visits from franchise managers.

You should check with your franchisor what level of training and franchise support you will have on an ongoing basis. Ask about the ratio of field trainers and operations managers to the number of franchisees in the group. You want the franchisor in your restaurant in some shape or form, two or three times a month, whether it be the training manager, the regional franchise manager or the national operations manager.

4. Access to supplier networks to manage your input costs

Negotiating basket pricing with distributors regionally and nationally, the franchisor will leverage their buying power on your behalf. They should assist to manage your suppliers and make sure deliveries happen on time, and ensure that product quality remains consistent. They can also negotiate to ensure your input costs do not increase before the next menu launch – so you can ensure your margins remain intact.

5. Brand loyalty and locality marketing

When you buy a restaurant franchise, you gain a group of customers who know who you are, the food you serve and the way you make them feel. The money you will pay towards marketing each month gives you insight into the broader restaurant market, the experience of what is working across a number of sites, and how best to keep the attention of new and existing customers.

Some franchisors offer locality marketing assistance – your site and area has specific needs that other outlets may not have, or there may be events in the area that can be leveraged to run special offers. Ask if the franchisor offers this as a service, as it can assist you greatly to have an advantage over other restaurants in your area.

Related: Beginners Guide To Digital Marketing In South Africa

6. Business development insights

The franchisor has access to insights gained across the group, and the systems that they have in place to track costs and increase profit margins, can be of huge assistance. If you are looking for business support, a franchise manager can be the one sitting with you telling you that you spent R2 000 too much on cleaning this month or saying you need to wait till next month to make that purchase. The level of business support you will have access to, is an important factor to consider, depending on the level of support you may require.

Recipe for success

Nine times out of ten, a restaurant franchise that fails, fails because the franchisee loses interest or lacks the commitment to make it work. Selecting the best franchise for you as the investor, or as a restaurant entrepreneur, is the most important first step you can take towards success, so do the homework.

Don’t assume that because you are buying into a successful brand that it will be a success – business is not an exact science – you need to do your own due diligence and take responsibility for your business, because it is after all your own investment.

Continue Reading

Company Posts

We Want To Invite You To Join Us On The Hi-Q Journey And Become A Franchisee

As the leader in the tyre replacement and service industry, we are invested in providing our network with the tools needed to thrive and grow in an ever-challenging market.

HI-Q

Published

on

By

entreprenerur-franchise-digi-ad-header

Vital Stats

This is an invitation to all innovative entrepreneurs who are seeking new and exciting opportunities – here’s your chance to become part of a winning team.

As the leader in the tyre replacement and service industry, we are invested in providing our network with the tools needed to thrive and grow in an ever-challenging market.

The Hi-Q Way

  • Hi-Q’s been voted the 1 tyre retailer by South African consumers in the Ask Africa Icon Brands Survey from 2010 – 2017.
  • Over the years Hi-Q has established itself as ‘the one you can trust’, with customers, the network and suppliers.
  • Hi-Q prides itself on first-class service, a multi-product/multi-brand offering as well as ground-breaking product innovations such as TyreSurance on all tyre brands.
  • Hi-Q has an extensive network of over 130 franchisees
  • Hi-Q has the support of the Goodyear value proposition.

If you are looking to join a new franchise and you share Hi-Q’s values and vision, please get in touch.

visual-2-hi-q

Continue Reading
Advertisement

SPOTLIGHT

Advertisement

Recent Posts

Follow Us

Entrepreneur-Newsletters
*
We respect your privacy. 
* indicates required.
Advertisement

Trending