Franchise or an independent?

[Atomicsimba]

I am currently looking at buying a business and have a meeting with a franchisor to explore purchasing an existing franchise in a few days time. Looking on here, quite a few views on franchises. This is a cleaning one with a turnover of £250k per year with net profits of £50k. I have been looking at independent businesses as well but the franchise is the first one I am actually viewing. It sounds good on the face of it - they aren't hard selling and want to ensure I am the right 'fit'.

I am a little worried about moving from employment to something that looks like self employment but is just employment dressed up as that.

It's the first time I will be entering a meeting like this. I'd appreciate any advice around what I should be asking at this stage. I know I will need to get a commercial lawyer should I proceed any further and any advice from those that have been through this themselves would be great.

 

[UrbanRetail]

I am a little worried about moving from employment to something that looks like self employment but is just employment dressed up as that.

Make sure net profits are actually £50k and not £50k before the current owner draws anything. That £50k could quickly turn into £25k, £15k or even less. Then you're essentially buying a job.

 

[Atomicsimba]

Thanks @UrbanRetail, I asked when I spoke with them last week and that's what the owner currently draws. Will definitely be double checking the accuracy of that!

 

[Deleted member 335660]

Another thing to look at are terms and conditions of the franchise.

Do you have to buy their cleaning supplies?

Are there any geographical or business type limitations?

Be clear how they make their money ( fees etc).

Where is the nearest other franchise?

 

[Mark T Jones]

First, I'd completely disregard individual opinions on whether franchises are good or bad.

There are good and bad Franchises and good and bad franchisees- and a real mixed bag of people connecting them.

Typically what a feanchise offers is brand and process - they may have additional offerings - so your first considerations are whether these are adding value to you. You also need to consider what you are adding to the franchise and what your ultimate goal is.

In this specific case, what are you actually paying for?
What would be the costs - and practicalities - of doing it yourself?

 

[Ozzy]

I asked when I spoke with them last week and that's what the owner currently draws.

The devil is in the detail, and just for clarity this detail means what the current owner takes as a salary and is not the net profit. The profit is what is left in the business after the owner has taken out what they need to live on, and that profit left in the business is what is used to invest and grow the business bigger and better - so to speak.
The value of the business is largely what the net profit is, what is left after the owner takes their salary. Otherwise you're buying a job as @UrbanRetail says above.

First, I'd completely disregard individual opinions on whether franchises are good or bad.

This comment from Mark is important as you'll find so many differing opinions on here and elsewhere. I'm in the "generally don't like franchises although accept there are some good ones" camp, so anything I would say is weighted against going down buying a franchise route. What you need is balanced input from all camps, and do your homework to check if they are one of the good ones.
My comment would be; if buying the franchise costs £250k be objective of what that gives you and could you achieve more spending that £250k building your own business from scratch. Or even buying one for less and spending the balance on growing it?

One thing that a good franchise does give you is the user manual to run a business if you don't have that knowledge already. They definitely suit some people, for purposes of explanation - a good manager can run a good franchise business because that manager is running a process and be very successful. Using my definition of an Entrepreneur, an Entrepreneur could feel constrained and frustrated by a franchise because of those same processes feeling like shackles forcing them to do things the franchisors way. Just my opinion and I'm not saying it's right.

 

[Chris Ashdown]

How strong is the brand, ad you ever heard of it before you searched. if the answer is no then what are they really offering

Have you looked around for the other franchisees outside of your area and asked them about the company they may give you different answers to one who is trying to offload the company

Why cant you just start up on your own, no ties, able to buy cleaning products from wherever you like at wholesale prices, no doubt by equipment cheaper, try it out whilst still employed on weekends , evenings and see if its what you like doing

Hard to see cleaning as a skill that is worth paying a lot of money to learn and being tied into a franchise with its reoccurring costs

 

[Mitch3473]

Another thing to look at are terms and conditions of the franchise.

Do you have to buy their cleaning supplies?

Are there any geographical or business type limitations?

Be clear how they make their money ( fees etc).

Where is the nearest other franchise?

and who owns your customer data base....is it yours because you've built the business up or is it the franchisors because without him you wouldn't have the custom or business and he owns the name and possibly other entities

 

[Scottishgifts4u]

Is this a one man band or does the company have employees and vehicles included in the turnover?

I’m assuming the latter as the figures certainly suggest some hefty outlays.

If you’ve never owned a business before how do you feel about being an employer and the management of employees that that entails? Especially in a business where ‘turning up on time’ is a vital part.

 

[JEREMY HAWKE]

I have seen people lose a lot of money in our industry getting involved with a franchise and I assume its the same in any industry .
Example
You buy a courier franchise and you get a postcode and you cant get new business from anywhere else
You start your own firm and straight away you have already got every postcode in Europe !

 

[Mark T Jones]

I have seen people lose a lot of money in our industry getting involved with a franchise and I assume its the same in any industry .
Example
You buy a courier franchise and you get a postcode and you cant get new business from anywhere else
You start your own firm and straight away you have already got every postcode in Europe !

In the F & B sector, franchises have a far lower failure rate than independents.

There are of course good and bad franchises, but the real issue is the way in which they are sold and bought - often sold as snake oil to naive fools who believe they are buying success. That was an eye-opener for me.

Ironically, the main reason people stay away from franchises is that they 'want to do their own thing' Whilst a huge cause of failure is that they don't have the first clue when it comes to branding or process, which is what a decent franchise offers

 

[Gecko001]

It appears that this is buying a business which happens to be run as a franchise.

Why is the owner of the business wanting to sell it?
The franchisor will only be interested in not losing a franchise.
I would dig very deep to find out the reason why the present owner is wanting to sell.

 

[papar]

There are way so many aspects and features you are supposed to check about the business and the company before taking a step. I myself don't accept personal opinions about this kind of stuff and issues because each person's situation and company conditions are different with another one so consulting a lawyer or someone who is dealing with this tasks will help you out more.

 

[MBE2017]

An acquaintance of mine started a cleaning franchise and it suits a lot of people. Not an expert but as mentioned before, you need to ask a lot of questions, what exactly do they provide, at what cost? Even down to the cost of brochures, paperwork, head office support etc.

End of the day you need to decide does the name and value they bring justify the asking price, some cost a lot, others not so much. Whatever you decide just remember, end of the day it is still down to you to go out and do the work, franchises do not make things any easier apart from brand recognition.

 

[Atomicsimba]

Thanks all, I appreciate the advice and views.

Met the franchisor at their HQ and came across well. Have met the current franchisee selling, and there appear to be personal reasons and moving away from the territory the franchise is based in.

The price essentially pays for the brand, HQ support, a couple of vehicles, customer base, staff already in place etc. Yes, much of which can be set up from scratch

I am able to run this, I manage multiple teams currently so the leadership aspect I am fine with.

I was able to meet another franchisee is another territory and they were complimentary of the franchisor and their own experience.

It's coming down to numbers now and what I believe is an over valuation, however I need to get a professional involved.

 

[MBE2017]

All I would recommend is to get a list of the franchises currently operating and ring as many as you can to confirm the reports on the franchisor, if several express the same similar views it would be time well spent.

 

[Atomicsimba]

All I would recommend is to get a list of the franchises currently operating and ring as many as you can to confirm the reports on the franchisor, if several express the same similar views it would be time well spent.

Thanks, I will do that and see if the feedback is consistent or not