Buying an ongoing business / franchise. Anybody done it?
Discussion
Has anybody done this, and if so - any tips for somebody who knows nothing about it?
The company I work for was sold in 2010 (actually, we were part of a much larger company, and just our bit got sold off). We were sold again last year, and now - not even a year later - we are for sale (or closure) again. I'm getting a tad tired of this, and I've reached the time in my life where I think I need to give some thought to serious life changes. Even though there might be jobs out there, I don't know that I would choose to continue what I do if given a choice - although I'm aware that might mean a significant drop in earnings.
So I'm seriously considering looking at business / franchise opportunities. Obviously capital is an issue and I'm not in a position to buy Apple / Microsoft etc. However, if I do decide it's worth the gamble and sold my two frivolous 4 wheel toys I could certainly invest £100k into a working business and still have some decent working capital left - and that's ignoring the possibility of business loans.
I'm not expecting a "this time next year, we'll be millionaires Rodney" type return - but I would like something that would provide a reasonable income from the start - and at least the UK business site I was browsing earlier suggests this should be possible with that kind of investment. One that caught my eye (admittedly in a business I know nothing about) seemed to be well established (> 10 years) with net profits of £50k-100k which sounded OK to me. Although I realise due dilligence would involve a lot more than just believing the seller!
I plan to do some research online, but I would welcome any feedback from people who have made this kind of change in life. It's a gamble, but maybe it's time for something like that. At the moment, I prefer the idea of a working business than a franchise - simply because part of the appeal is being my own boss and a franchise still feels a bit like you're tied to somebody else.
The company I work for was sold in 2010 (actually, we were part of a much larger company, and just our bit got sold off). We were sold again last year, and now - not even a year later - we are for sale (or closure) again. I'm getting a tad tired of this, and I've reached the time in my life where I think I need to give some thought to serious life changes. Even though there might be jobs out there, I don't know that I would choose to continue what I do if given a choice - although I'm aware that might mean a significant drop in earnings.
So I'm seriously considering looking at business / franchise opportunities. Obviously capital is an issue and I'm not in a position to buy Apple / Microsoft etc. However, if I do decide it's worth the gamble and sold my two frivolous 4 wheel toys I could certainly invest £100k into a working business and still have some decent working capital left - and that's ignoring the possibility of business loans.
I'm not expecting a "this time next year, we'll be millionaires Rodney" type return - but I would like something that would provide a reasonable income from the start - and at least the UK business site I was browsing earlier suggests this should be possible with that kind of investment. One that caught my eye (admittedly in a business I know nothing about) seemed to be well established (> 10 years) with net profits of £50k-100k which sounded OK to me. Although I realise due dilligence would involve a lot more than just believing the seller!
I plan to do some research online, but I would welcome any feedback from people who have made this kind of change in life. It's a gamble, but maybe it's time for something like that. At the moment, I prefer the idea of a working business than a franchise - simply because part of the appeal is being my own boss and a franchise still feels a bit like you're tied to somebody else.
(1)...You MUST be able to sell
(2)...You MUST ensure the business is viable.
I bought a new franchise from a large British company, just to be extra safe. They got the equipment wrong and pricing wrong, which cocked up the business plan beyond recovery and the network collapsed.
Spent four years chasing them through court with other franchisees and succeeded, but only as far as paying off my creditors. The rest of invested capital was lost. Those four years were an eye opener, revealing crooks in an international firm of lawyers who tried to penetrate our bank accounts, among other things, with a view to getting our legal aid revoked, thus shutting down our case.
I saved my house, but that was just about all. It also killed my marriage. Guess I was lucky, though, as legal is no longer available for such cases and, in a similar situation today, I would be stuffed.
Take care...
(2)...You MUST ensure the business is viable.
I bought a new franchise from a large British company, just to be extra safe. They got the equipment wrong and pricing wrong, which cocked up the business plan beyond recovery and the network collapsed.
Spent four years chasing them through court with other franchisees and succeeded, but only as far as paying off my creditors. The rest of invested capital was lost. Those four years were an eye opener, revealing crooks in an international firm of lawyers who tried to penetrate our bank accounts, among other things, with a view to getting our legal aid revoked, thus shutting down our case.
I saved my house, but that was just about all. It also killed my marriage. Guess I was lucky, though, as legal is no longer available for such cases and, in a similar situation today, I would be stuffed.
Take care...
You will be sold a fantastic story yet the reality may be different. I bought a business from a "friend" and inherited his company tax bill for the previous year + his forecast of future fee income turned out to be quite optimistic! I'm out the other end and doing really well, enjoying it etc albeit had a tough 6-12 months initially!
TX.
TX.
Obviously due diligence, by you, an accountant and a lawyer is absolutely crucial but you will still be taking a significant risk which is why the rewards can be very high.
My advice would be regarding the price you pay. Don't for one moment think that the advertised price is the one you have to pay, as if you were buying a house. The market for small businesses is far less liquid than the housing market. There are far fewer people in your position, wanting to buy a business, than there are wanting to buy a home.
My experience is that prices can tumble dramatically; here's a specific example:
I saw a business in the same sector as mine with an asking price of £100k which had already been reduced from £180k and £150k. I offered £60k and had the offer immediately accepted. And it wasn't even £60k cash, I was offering an earn-out over a couple of years and there was only £20k up front, really I was going to buy the business with its own money, not mine.
Unfortunately it seems that the couple who were running it were struggling and just wanted shot of it had become a nightmare for then as they were not really business people.
Even more unfortunately I was inexperienced in the process of buying a business at that time and I took too long over the due diligence and then was let down by the sale agent. The vendor was trying to contact me via the agent who failed to pass a message on and the vendor ended up giving the business away to save his wife from having a breakdown. When I eventually tracked him down (via the caretaker at the business park where he had his premises) he was working in a cab office. He told me he had settled for a tiny percentage earn-out over a six month period.
More recently I am in negotiations with another business and this time I am offering a combination of an upfront payment, another payment after six month and then a percentage of turnover each month for nine months, starting after the second installment. The total amount will be close to the asking price but effectively I would be 'borrowing' much of the money from the future profits of the business which is only possible because I can take out most of the overheads from the business when (if)I get it.
So far I've had two offers turned down but I have meeting lined up for another round of negotiations. I view it as a buyers' market and the vendor wanted to retire to the sun a year ago so I won't be upping my offer.
My advice would be regarding the price you pay. Don't for one moment think that the advertised price is the one you have to pay, as if you were buying a house. The market for small businesses is far less liquid than the housing market. There are far fewer people in your position, wanting to buy a business, than there are wanting to buy a home.
My experience is that prices can tumble dramatically; here's a specific example:
I saw a business in the same sector as mine with an asking price of £100k which had already been reduced from £180k and £150k. I offered £60k and had the offer immediately accepted. And it wasn't even £60k cash, I was offering an earn-out over a couple of years and there was only £20k up front, really I was going to buy the business with its own money, not mine.
Unfortunately it seems that the couple who were running it were struggling and just wanted shot of it had become a nightmare for then as they were not really business people.
Even more unfortunately I was inexperienced in the process of buying a business at that time and I took too long over the due diligence and then was let down by the sale agent. The vendor was trying to contact me via the agent who failed to pass a message on and the vendor ended up giving the business away to save his wife from having a breakdown. When I eventually tracked him down (via the caretaker at the business park where he had his premises) he was working in a cab office. He told me he had settled for a tiny percentage earn-out over a six month period.
More recently I am in negotiations with another business and this time I am offering a combination of an upfront payment, another payment after six month and then a percentage of turnover each month for nine months, starting after the second installment. The total amount will be close to the asking price but effectively I would be 'borrowing' much of the money from the future profits of the business which is only possible because I can take out most of the overheads from the business when (if)I get it.
So far I've had two offers turned down but I have meeting lined up for another round of negotiations. I view it as a buyers' market and the vendor wanted to retire to the sun a year ago so I won't be upping my offer.
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