Buying an existing franchise

[colin_mckellar]

I am currently trying to buy a franchise resale. I have agreed terms with the seller but am having major difficulties with the franchisor.

I had the franchise agreement checked over by a franchise lawyer whose report ran to 8 pages of concerns and comments.

The franchise agreement requires me to agree to their terms and conditions as well as the code of practise. Problem is that it has taken over 3 weeks to get them to release the terms and they won't let me see the Code of Practise. Seems that the only way I can see the code is if I am invited to the current owner's house and read it on his computer. I know that there are some items in the code that affect me financially and that is why I really need to see it.

Is this normal as I am getting a bit worried that this could signal problems with head office?

I did speak to a chap at Business Gateway who said that the process should be transparent and that I should not have to chase a franchisor to get basic details.

 

[Nick D]

I would be very cautious if they expect you to agree to a document that they will not provide access to. I would get my solicitor to write a letter to their H.O explaining that your acceptance of the code of practice would not be deemed fair and reasonable consent, and therefore would not be legally binding unless you were provided with a copy of the code of practice before signing your agreement. It's a two second job to print a file to PDF and email it so what are they trying to hide by withholding the document?

 

[colin_mckellar]

Those are my thoughts exactly, Nick. What are they hiding?

They say that it is not company policy to issue the Code of Practise before signing up but since when was that a good idea??

My lawyer is not happy and neither is the seller's lawyer and I am piggy in the middle not knowing which way to jump.

I can't make up my mind if I am being over sensitive and maybe turning down an opportunity or being sensible in getting everything sorted out before parting with any money.

I'm tending towards the sensible option.

 

[Psl]

As an ex-franchisor, we only ever took part in one re-sale of one of our franchises.

Our main priority in the re-sale was would the 'new purchaser' of the franchise be a suitable candidate for the franchise? Then it was 'what would gain from the re-sale?'


When it came to contracts, operations etc we were happy to provide these and other pertinent information that was requested.

Are the franchisors saying that their 'Code of Practice' is actually their operations manual?

There is no reason why you shouldn't be provided with a copy of it and the excuse that you can only see it on the sellers computer is absolute BS. If it's on his computer he should email it to you, it's as simple as that.

It is good that you have had the franchise agreement checked by a solicitor but eight pages of concern and comments, franchise solicitor or not?! How many pages is the franchise agreement?

This point is very easy to address as a franchisor, and this is what may happen.The franchisor will tell you that as the buyer, either buy the franchise and sign the existing agreement or don't buy it and don't sign the existing agreement.

You have to remember that the franchisor already has a franchisee in place, so why should they as the franchisor, 'rock the boat' and help push through franchise re-sale? It's not as if they will be getting a new franchisee on board, they are merely swapping one out and one in, and probably taking an admin fee from the process.

Why is the business so appealing to you?
What is the franchise that you are buying?

 

[Ash-CBO]

As above, I think there are some obvious alarm bells that should be ringing here.

Unfortunately on the negative side of franchising for the small few, agreements are heavily waited towards the franchisor and not the franchisee and so any lack of transparency would raise obvious doubts.

Also, have we established why the franchise is being re-sold in the first place?

Should you be interested in exploring further franchise opportunities please look at:
www.completebusinessopportunities.co.uk/franchise

 

[colin_mckellar]

The code of practise isn't just an operating manual. It contains items that I think should be in the agreement.

An example is the requirement to give them a white vehicle to put company livery on. I didn't know that until I went for the meeting at head office. The existing franchisee's car is red and he had never heard of this rule before. After looking for a small van and about to buy one I was talking to the seller and he found out for me that all vehicles have to be less than 6 years old. Again, in the code of practise that I have no access to.

The resale seemed a good way into business without starting from scratch. It wasn't doing particularly well and I thought that I could build it up.

I certainly didn't have a budget for another vehicle when I agreed terms with the seller.

 

[Talay]

Franchise ? Why give a thick slice off the top line to the franchisor which could equate to 33% to 50% of your net ?

Lead them up the garden path and down again if you want. Go to their "command centre" and view their documentation. Can't be that hard to find their edge.

In one sector in my area, we've pushed one franchise off the map and are eating up another's clients. I guess they'll chuck in the towel next year. Did I go to see their main man about becoming a franchisee ? Of course, I did.

 

[Feldon]

I've looked at several franchises but in the end always thought why should i pay someone else for a business and then be beholden to them for the duration of the agreement. Ask yourself if you really need a franchise, can you set up a similar independent business? If so why not go for it on your own for a fraction of the price and all of the profit.

I made inquires last week about a well known franchise in the sector i am interested in and have been mulling it over for several years. At the end of the day it is a very simple business but they want near £7K for it, a few years back i was offered it for less than £2k and i still found it advertised on the net at this price. When i questioned the price the sales person, (this franchise now outsource the recruitment to another company) got a little hostile and told me the price is the higher price. He also told me that they have several people interested in my area, funny that i've been told that several times by various franchises over the years and still waiting for them to open I was told that he would send me some further information which turned out to be not a lot and if i wanted to go ahead they wanted me to move very quickly. Upshot all my warning bells were going off and i have decided to set up this business on my own for a fraction of the price (a few hundred pounds) and take my chances, at least it will be my own business on my own terms.
Although there are some good franchises out there i have read of so many horror stories, don't be another one.

 

[colin_mckellar]

I have decided against joining. Not an easy decision as I had left my job and spent about £1,000 on legal fees plus about £500 on a new computer and software.

In the end I just lost confidence in them actually doing anything right.

I spoke to the seller's lawyer this morning and he agreed that the problems that I have experienced were not good and that the franchise should have been more open.

I'm not sure how many people sign a franchise agreement which stipulates that you agree to abide by their code of practise when they are not allowed to look at it until you are a franchisee!! I just wasn't going to be one of them as I knew that there were parts in it like providing a white vehicle that could prove costly.

All comments on this thread have been very helpful and I appreciate the time people have taken to reply.

Anyone know of a business for sale within the Strathclyde region? lol

 

[businessfunding]

I have decided against joining. Not an easy decision as I had left my job and spent about £1,000 on legal fees plus about £500 on a new computer and software.

In the end I just lost confidence in them actually doing anything right.

I spoke to the seller's lawyer this morning and he agreed that the problems that I have experienced were not good and that the franchise should have been more open.

I'm not sure how many people sign a franchise agreement which stipulates that you agree to abide by their code of practise when they are not allowed to look at it until you are a franchisee!! I just wasn't going to be one of them as I knew that there were parts in it like providing a white vehicle that could prove costly.

All comments on this thread have been very helpful and I appreciate the time people have taken to reply.

Anyone know of a business for sale within the Strathclyde region? lol

Probably the right decision - there seems to be a lack of openness and trust here - not the basis to start a business relationship

Why are you looking to buy a business as opposed to starting one?

there is nothing fundamentally wrong with buying - or with franchises - but it is important that the motives are right. You will never buy success!

 

[Feldon]

Well done Colin, i think you have done the right thing. As post above why buy an existing business when you could start your own from scratch for a fraction of the cost. A lot, not all, of businesses for sale are being sold for a reason and its not due to retirement or illness or family reasons as is most commonly used. If you buy an existing business you need to get all the facts and figures, not just some figures scribbled on the back of an envelope by the existing owner or maybe a cashflow forecast. You need proper accounts drawn up by a accountant.

If you don't mind sharing what was the franchise or business sector you are looking to enter? Maybe we can point you in the right direction or offer alternatives.

Richard

 

[colin_mckellar]

I've just received a reply from my lawyer saying that I had made the right decision in walking away. That makes me feel better (until his bill arrives )

The reason for buying an established business was due to my age. I'm in my mid 50's and wanted an income rather than starting from scratch. I had hoped to build on what was already there and keep it for 10 years before selling it so I could retire.

I had better not mention the franchise by name in an open forum as don't want sued!! Legal bills will be high enough without that.

It was a cleaning franchise but am open to suggestions. My background is in IT and customer service.

 

[Psl]

I've just received a reply from my lawyer saying that I had made the right decision in walking away. That makes me feel better (until his bill arrives )

The reason for buying an established business was due to my age. I'm in my mid 50's and wanted an income rather than starting from scratch. I had hoped to build on what was already there and keep it for 10 years before selling it so I could retire.

I had better not mention the franchise by name in an open forum as don't want sued!! Legal bills will be high enough without that.

It was a cleaning franchise but am open to suggestions. My background is in IT and customer service.

A wise decision based on the information, or lack of it from the franchisor, that you have had.

It's always best to 'doublecheck' everything when it comes to buying a franchise.

If you are intent on going into the commercial cleaning sector then it shouldn't be too hard to pick up some clients.

What are you good at as that may determine what business you go into to?

Look at the money spent as saving you many thousands more