ACQUIRING AN EXISTING BUSINESS OR FRANCHISE: WHAT YOU NEED TO KNOW

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Starting a new business can get very challenging whether you are a first-time entrepreneur or an experienced one. However, buying a business already in existence or a franchise could be a simpler option.

The main difference between franchising and buying an existing business however, lies in the level of control you will gain over your business.

Franchising offers more guidance than control.

A franchise is a business model where a business owner or “franchisor” sells the rights to his business logo, name, and model to an independent entrepreneur (i.e. the “franchisee”). Businesses which are commonly franchised include restaurants, hotels and fuel filling stations.

There are two common forms of franchising: Product/trade name franchising and Business format franchising. The former usually focuses on supply chain management while the latter offers services like site selection, training, product supply and marketing plans.

Buying an existing business on the other hand, offers more control over its direction but less guidance.

One major advantage of buying such a business is having an existing blueprint which may include an established customer base, defined operating expenses, and fully trained employees. Regardless of business type, almost any kind of business is capable of being bought or sold.

Factors before franchising or buying a business:

Quantify your investment value: Decide how much you are willing to spend on the purchase as well as manage the business.Consider your skillset: Be honest about your skills and experience, so you can be realistic about the business venture you want to buy into. If you prefer hands-on assistance, franchising might be the best choice for you. However, if you are an experienced entrepreneur, buying an existing business should rather be considered.

Documents needed to buy business or franchise:

Once you have found a franchise or business of interest, it’s important to conduct a thorough investigation.

It is necessary to have an attorney and an accountant to assist you create and evaluate important documents which include:

Letter of intentConfidentiality agreementContracts and leasesFinancial statementsTax returnsSales agreement

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