Buying a franchise that's for re-sale? Expert advice for you
In this section, you will find comprehensive advice from a range of experts on buying a franchise resale. This includes the benefits of buying a resale versus buying a 'new' franchise, how to identify if it is worth the asking price, researching a resale to find the one that's right for you, business planning, how to obtain funding and what legal advice do you need to take.
Why existing franchises are for sale
Johnny Sellyn, Founder & MD whichfranchise.com outlines the reasons that franchise resales exist.
As the franchise market in the UK matures, the resale of franchise businesses is becoming extremely common. There are many reasons why there are franchises for resale in the UK, including:
- The franchisee is retiring
- The franchisee is looking to relocating
- The franchisee has other business interests that they need to concentrate on
- The franchisee, or a loved one, are ill and so they are unable to give a 100% commitment to their business
- Their exist strategy has always been to sell the business after a certain amount of years and to make a profit
- They have realised it is not the right business for them
What sets a resale apart from a new territory?
You may pay a premium for buying a UK franchise for resale, perhaps as much as 30% if the business has a good track record, but if a greenfield site that needs building from scratch is a daunting thought, a franchise resale may be right for you and worth the extra money.
As well as the traditional benefits of franchising, including the training, support and use of a proven business format, when purchasing a franchise for resale you are able to take advantage of actual trading accounts and of course an existing client base, making your future a little easier to predict.
What you should look for
An existing business should be able to show you some actual performance figures, together with any management figures produced. You should also be able to obtain from the franchisor the figures provided to them by the franchisee for verification.
Also seek the advice of an accountant as to whether the sale price represents value for money. If the franchisee has any staff it may be useful to ask them what they think of the business.
Why not also conduct some of your research through the existing client base – after all it is they who will keep you going in the future. Are the customers happy, can you retain them once you have taken over, how can you enhance the customer experience in the future and are there more customers out there?
Pay some attention to the existing franchisee’s relationship with their customers and if there appears to be little loyalty be aware that you may have to rebuild confidence and equate this to the premium that you may be being asked to pay. Conversely, if you find that the franchisee has an excellent relationship with clients, consider a hand over period to allow a smoother and more effective transfer of ownership and of course ultimately success for you!
Advantages of buying a franchise resale
Franchise resale experts Derrick Simpson and Jess Bains talk to us about the advantages of buying a franchise resale.
The statistics relating to the success of franchises bought as sales of existing businesses are becoming well known and are being taken into account by prospective purchasers.
Results of the NatWest/bfa Survey of UK Franchising show that 7 out of 10 franchises acquired over the last two years had been previously operating before they were bought. A clear indication the message about the strength of a resales acquisition over a new “greenfield” location is being recognised as the logical way to buy into franchising.
The stability obtained through taking on a trading business is clear to see:
- Cash flowing through the business from day 1
- Brand presence in the local market place
- Clients and customers from the start
- Stock, staff and property (if appropriate) all in place
- Business to planning is easier to develop from known data
- Smoother funding process due to the proven business history
- The purchaser’s task is to grow what is already there
Developing a business presence in a new territory can be time consuming and costly so the advantage of taking on an existing franchise, that is already known in the area and which has current customers and clients, is clear. That is not to say growing any business is easy - far from it – but it is easier to move on and drive a process that is already underway. To speed up a rolling ball as opposed to pushing it to start from a standstill position is always the energy efficient option.
The above positive elements which demonstrate why buying a franchise for resale would be a strong option to consider also make the opportunity attractive to secure banking facilities for your new business. All businesses will usually require some form of banking facility and many will require additional funding most often in the form of a loan. If not a loan then, at the very least, an overdraft facility is usually required to support a level of working capital.
When presenting a structured business plan to the franchise units of a bank to secure these facilities, the strength of the proposal and therefore the likelihood of its being approved will, in part, depend on your business projections.
With an existing business there is clear evidence of what has been achieved by the current owner so projections can be based on fact and this will give considerable weight to the proposal. This in turn will make it more likely to be accepted because the previous trading history and brand presence plus your drive and background all combine with a franchise resale to make this option the logical route into franchising.
Franchise resales are big business in 21st century and investing in such an opportunity presents certain advantages over a new franchise location or independent business. Nationally renowned Franchise Resales Consultant for Franchise Sales & Resales, Jess Bains, elaborates.
As with any business transaction, when investing in a franchise resales opportunity, it is imperative that you recognise what you are receiving in return for the money paid to the franchisor. While the franchisor does provide assistance in exchange for the fees they receive; not all of them are identical.
Franchisors provide value in different areas depending on the strengths and strategy of their business model. You should identify why you are buying one franchise over others and set appropriate expectations before making your decision.
A franchise resale provides advantages in the categories listed below:
Established Track Record
When you buy a franchise resale, you are usually investing in a franchise concept, which has products and services that have sold successfully. You will have trading history to learn from and to support your forecast for the future. Investing in a franchise resale is based on an already existing business model that, in most cases, has worked successfully for the franchise owner.
A franchise owner can profit from the brand recognition that a franchise resale provides. If you start your own business it can take many years to build a brand in a competitive market. There are no guarantees that the consumers will identify the brand as a product leader. A franchise resale can provide owners with immediate brand recognition.
Instant Cash Flow
An established franchise for resale will offer instant cash flow. If you start a new business it may take anything from 12 to 18 months before your business starts to make a profit. With a franchise resale you have an existing customer base of clients using your services and products.
Most franchises for resale will have experienced team of staff, who will have been trained and experienced in the day to day running of the business. The existing franchise owner may also stay on for a period of time, enabling a smooth takeover period and to ensure you fully understand the systems and working methods of the franchise resale. The franchisor will provide training where appropriate; a five to 10 day induction course is typical.
It can be extremely costly for an independent business owner to market their business, whereas a franchise resale has the advantage of already having an existing marketing strategy in place. Also, the franchisor will have a franchise agreement that normally works to supply franchisees with marketing campaigns to ensure customers identify with and remember the brand. Belonging to a franchise reduces marketing costs, which are shared equally with other franchise owners.
Investing in a franchise resale limits the risks that are involved in business, most banks will look favourably upon lending to a franchise resale as opposed to a new business start-up.
How to evaluate a franchise resale
If you are looking to buy a franchise resale, here are some of the key areas you need to think about:
- Why is it for sale? - As well as your research into the franchise itself, you will also want to find out about the reasons for the sale – is the franchisee retiring or have they found that the business is not right for them?
- Business performance - Get advice from your accountant. How has the business performed, what do the audited accounts show, is the business profitable? It may not be, if the previous franchisee has underperformed. You need to check if this is just a one-off, or if a large number of the network is having problems?
- Research local market - Assess the market in that area, what is the competition, has something changed which will affect the business (high street pedestrianisation for instance).
- Resale costings - Is the asking price reasonable, look at other businesses for sale in your region and again, speak to your accountant. How long will it take you to repay any borrowing to buy the business? Is that a reasonable payback period? Can the price be negotiated; are all the fixtures and fittings, equipment, stock, etc included?
- Sale considerations - How is the sale being structured? There are two types of sale that the franchisee can employ; share sale or asset sale. These are both very different and it is important that you understand the implications of each. Ensure you seek legal and accountancy advice before committing.
- Personal savings - Do you have enough capital and security to buy into an established business? The costs will be higher than buying a brand new franchise where the concept has not been established. However an advantage of purchasing an existing business is that if finance is required you will have existing accounts to demonstrate to the bank how the business has been performing.
Suki Dehal, Lloyds Bank gives further advice on what to look out for when buying a franchise resale.
Purchasing a resale franchise can have some great advantages over starting a new business from scratch, but there are also some pitfalls to avoid. Resale franchise units may consist of successful operations that are making money as well as units that are either losing money or barely making ends meet. Whether the existing business is successful or not it can potentially represent a rewarding opportunity for you, but the risk associated with an under-performing unit is substantially greater. Before looking at the various resale opportunities out there, you should consider your own strengths and weaknesses as the potential new owner.
One of the first tasks is to establish the true reason the business is being sold which may not necessarily be what you are initially told. Are the outgoing franchisees ready to retire, just want a change of lifestyle or are they trying to escape an unbearable grind of long hours for little reward. Sellers will be canny enough not to tell you the business is awful, so you're not going to want to buy it from them. They will dress up the business as best they can to achieve a sale at the best possible price. You’ll need to speak with the outgoing franchisee but also to look at other sources of information. Resources available should include the franchisor as well as other franchisees in the network or other industry sources.
Once you’ve established their motivation for selling look at the financial performance over the last few years and the trends. Are the sales growing, stable or in decline? Mature businesses with track records of success that can give you cash flow from day one. The business is already trading so will have customers, enquiries, sales and service delivery from day one, however struggling businesses may have poor relationships with their staff, suppliers and customers which may impact your ability to turn them around. You should ask the franchisor to confirm the information you're receiving from the seller. If the seller is not being honest with you, you'll often pick up clues from comments made by the franchisor. Prospective buyers are advised to fully investigate the business and seek professional advice.
A resale opportunity will suit investors who can multi-task and want to hit the ground running. If you prefer to start from scratch there will be different challenges to face in building a customer base, sales and a local market presence. You should select the choice which you are most comfortable with. A buyer needs to adopt a structured approach to ensure that they truly understand the potential of the business opportunity. The best franchise therefore is the one that most fits a prospective purchasers skills and aspirations. Each person will have a view of what opportunity suits them best. A prospective purchaser needs to see beyond the recruitment hype and drill down to the heart of the business opportunity.
Purchasing a resale will usually be more expensive than a buying new franchise territory. This is because the target business is probably generating an existing profit and the selling owner will be paid a premium for their business. If you haven’t got the required capital from savings then financial assistance is at hand from banks, such as Lloyds, that specialise in the franchise market. This may require you to take out a business loan and usually inject at least 30 per cent of the capital required from your savings.
With a new franchise territory you pay the franchisor an initial franchise fee plus, usually, some training and set-up costs. A new business has to grow from scratch so will not generate profit for a while and will require a high level of working capital to meet the operating expenses as it grows. A resale generates cash flow from day one and, hopefully, generates immediate income for you.
Buying an under-performing franchise - can you turn it around?
When looking to buy an existing franchise, there are two types of businesses for sale – those businesses which are successful and those which are under-performing. However, whilst a performing franchise will bring with it many benefits, and probably a hefty selling price, you shouldn’t be quick to rule out a franchise that hasn't been operating successfully or even one that has been losing money.
To reduce the risk associated with buying an under-performing franchise business, you need to firstly identify why the business is struggling, is it franchisee negligence or external factors that are out of the current owners control, and ultimately, can it be turned around to be sustainable long term.
Identify potential reasons for business failure and under-performance
“If you are looking to buy a franchise that was previously unsuccessful, take time to research the wider organisation, its growth track record, what support is offered and its ethos and culture. A good franchise business will provide a platform to enable its franchisees to build and scale their businesses and will have fostered a positive community that is supportive, people driven and all in all successful on a wider level. If this is the case it may very well be that the reason the individual franchise was unsuccessful is down to it not being the right fit for the current owner, whether that be skillset or the level of commitment being put into growing the business and servicing its customers.”
Steve Byrne, CEO, Travel Counsellors
Firstly, identify what the motivation is for the owner to sell now? Are they looking to retire or maybe relocate and happy to take what the business is worth? Or the franchisee may have had a change in personal circumstance such as ill health, or that of a close family member, which would also affect their ability to run the business.
“ Our previous Swindon franchisee Danielle couldn't focus on her branch and she eventually had to leave to become her son's full-time carer. The business was put up for sale. It was taken over by Andrew Saye (who had previously lived and worked with lions in Africa). He is only 6 months in but earning £2,000 per month, so he is really turning the branch into a success story! He's had to make tough changes and faced some challenges, but he is doing a fantatsic job and we're really proud of him.”
Joanne White, Director, We Love Pets
They could be escaping employee issues or maybe fed up with long hours with little rewards. It may be that they are aware of forthcoming changes that could impact their business, if this is the case you need to find out more.
The biggest indicator of success is financial performance. Ask to see the company’s business accounts for the past few years. Look at any trends i.e. peaks and dips and identify the reasons for these. Is it a seasonal business? Does the business rely on the presence of the owner and dip when the owner is absent? Has other businesses opening affected activity for you?
Find out more about the employees (if the business employs staff). Are the staff happy? Do they need retrained? Could a new owner change staff morale in the business? Would the staff stay if asked?
If location is crucial for the success of the business, you need to make sure you identify any proposed changes to - continuation of the lease agreement, new competition, any planning permissions submitted to the council that could impact the business further or planned road works that could have a negative impact on the business.
It is worthwhile asking the franchisee point blank if they know of anything that hasn’t been disclosed that could hinder the future potential of the business. It is also worth seeking legal advice as they may be able to include any responses in the legal purchase agreement.
It is also vital that you understand the business model and investigate the franchisor, treat the research as if you are looking to open a new unit from scratch. It will also give you further ammunition for asking the franchisee the right questions, and the franchisor should also be able to confirm from their responses if the seller is giving you accurate information.
“Thorough research is the key to unearthing why the business hasn’t performed. You should find out why the current owner thinks this is, and does that match the one the Franchisor has offered? Has the database been fully exploited in the area? Is there demand for the product or service offered? What’s the current reputation of the business? If poor, can it be recovered? The answers can highlight a real opportunity. There are savings to be made when buying a poor performing business. Set up costs can be negotiated and the Franchisor may, in certain circumstances, be willing to support your purchase if they believe you can turn the business round. It should be remembered however, that establishing any business takes time, effort and investment. If the business you are looking at is in a location you want to trade in, is a business you can see yourself being successful in and the reasons why that business hasn’t performed to plan to date is plausible then, you may just have found a real gem in a resale.”
Mark Holland, Bodystreet Franchisor
You may find that a big reason for the business underperforming is simply down to the franchisee and the fact the business may not be right for them. Picking the wrong business and having to do work you don’t like doing day in and day out can be daunting and demotivating. This can lead to stage where you are stuck in a rut and resent having to turn up for work each day. This would have a massive impact on the business.
But the good news for the buyer is that the fortunes of the business could be turned around. You do however need to ensure yourself that that the business is RIGHT for you; doing your research into the franchise company and speaking to other franchisees will help you to determine this.
And if you believe you can make the business a success, a major benefit of an under-performing franchise is that you should be able to get the business for a good price; you should only pay a nominal sum or a price that reflects the values of the assets being transferred. And if you are not getting offered a good price but are very keen on the business model, you can always go to the franchisor to discuss buying a new franchise business direct from them.
"As a brand we have only had 2 clinics where the initial owners failed to establish the model successfully. In both cases, another of our franchise partners picked up the business for a modest price and proceeded to implement the model and turn the business around. If the core business model of the franchise is proven and being delivered across multiple territories then the odd failing franchise is usually caused by local implementation problems and this has indeed been our experience. Such businesses present a great opportunity for a new owner to grab a bargain and then, in conjunction with the franchisor, to 'tweak the dials' and turn it around quite quickly. In both of our cases, the businesses turned round very quickly once they were under new ownership and new management. The franchisor needs to be careful with their choice of franchise partner when handling a failing business; the challenge is not for everyone."
Mark Witter, Founding Director of Window to the Womb
Turning the business around
So, equipped with all this information, you need to now ask yourself, would a change in ownership fix any problems you have identified? Knowledge is power and so the more information you can gather will help you to answer this.
"Initially I was worried and concerned about buying a failing and non-profitable franchise, however 2 years later I have now tripled the turn-over and it is generating significant profits each month. It goes to show that you shouldn't judge a book by its cover!"
Mark Sadleir, Window to the Womb franchisee & Winner of the BFA HSBC Multi Franchise Award
So how do you help the business to be a success?
“We felt that the previous business owners had lost a bit of the love so we used the energy and enthusiasm we had after taking over the business to say “yes!” as much as possible. We tried to take advantage of any opportunities that came our way be that marketing, PR, events, new customers etc to see where that took us. We also spoke to as many of our existing customers as we could and took the customer service up a level. It was hard work but resulted in the business growing far more than we’d initially predicted as new customers came on and existing customers stayed with us.”
Jo & Phil Limb, Riverford franchisees North Devon
"Under'performing, regressing, negatively trending or simply running out of cash are some of the words used for what essentially describes a franchise that will at some stage hit the buffers. Having seen heads go down and the energy come out of a franchisee on relatively small issues, the franchisor can put an arm around the shoulder and tell you “there, there it will all be OK” or give you kick up the backside and remind you that the most unforgiving critic will be the wife or husband who is now trying to make ends meet! Nobody wants to fail but it’s amazing how many times people fail to spend their time doing what is needed to survive like go out and do the basics like selling. It’s strange how many times you hear that those who are luckiest are those that work hardest."
Michael Graham, Chemex MD
“Talk to everyone involved in the business and use this as a chance to show how great you can make the school when you take on board their feedback. We really didn’t change very many things but what we did do is make the culture very positive and try to lead by example. We are very proud that the ethos and general atmosphere at Razzamataz Sutton Coldfield is warm, welcoming and we have instilled a belief in all our students that they can achieve with the right mind-set and hard work.”
Nick Furlong, Razzamataz franchisee, Sutton Coldfield
- Make sure you have sufficient working capital – lack of funds to keep the business is running is a major reason for business failure.
- Change the proposition of the business – if whatever the current franchisee is doing isn’t working, then you need to look at how the business is positioned and promoted to the community. What can be changed to make it a more attractive offering to customers? Do you need to undertake additional marketing? Or more appropriate marketing for your target market?
- Meet your customers – restore their faith in the brand and let them know that you are committed to the business and making it an integral part of the local community. Market the business like crazy!
- Reconnect with the franchisor – most failing franchises don’t reach out to their franchisor for help until it is too late. Franchisors are there to support you and by reconnecting with them, you can form a new relationship that starts of positively from day one.
- Be prepared to work hard – as obvious as it sounds, some franchisees may enter a franchise relationship not understanding their role in the business and the fact you need to be prepared to put in as many hours as required. This is your business, no one else will be as committed as you.
- Better staffing choices – as mentioned earlier in the article, staffing issues can hinder the success of a business and so bringing in your own staff could combat this. Staff recruitment and training can be a worthwhile investment in the long run; cutting corners will only incur costs later. Also, reconnect with any staff you are retaining, let them know your plans.
- Plan, plan and plan some more! – the existing franchisee may lack planning skills and could have been firefighting problems as they arose. Adequate planning and a comprehensive business plan can help you to combat many issues as well as giving you clear focus for the running of your business.
“Once the sale of a franchise has taken place, a new franchisee would be expected to drive the business forward as they are more likely to have new energy, new ambitions and new financial targets. New franchisees will also tend to have a higher level of fear (a great driver); selling franchisees have a higher level of apathy (great limiter). The new franchisee will listen more intently to the franchisor and implement more of the key activity required to grow the business than the outgoing franchisee. New franchisees tend to grow the business they have taken over because they tend to be more focused, more driven, more ambitions and more compliant to the system.”
Nigel Toplis, MD of the Bardon Group
Any necessary changes you are making should be implemented before opening your doors for business. This lets your customers know you are serious about making it work and learning from the mistakes of the previous owner.
So, if you are willing to do the research into the failings of the business and happy to put in the effort required to turn the business around, buying an underperforming franchise could be a great business opportunity for you.
‘An underperforming franchise offers a fantastic opportunity to buy a business at a good price with huge potential for growth. Sometimes very simple and small changes can make a large impact and of course great kudos to you for turning around a declining business. A business can fall into this bracket having been owned for a long time by the same person; change is difficult for some and a fresh pair of eyes and energy can be exactly what that business needs. There is also the occasion when owners don’t wish to continue to re-invest in a business, perhaps if they are nearing retirement so a different set of priorities are in play. Looking backwards at accounts rather than forwards to the potential is what often people make the mistake of doing. The beauty of a franchise business is that it’s a tried and tested model – so the opportunity to buy one in decline is actually a great find and one that should be snapped up rather than feared’.
Tracey Ball Franchise Recruitment Manager Metro Rod
Case studies of franchisees who bought a struggling franchise
Nick Furlong and Gemma Hextall, Razzamataz Sutton Coldfield
You many think you have to buy a franchise and build up from nothing but that’s not always the case. Some people opt to purchase an established franchise business and focus their energies on improving where the previous owners left off.
Nick Furlong and Gemma Hextall bought Razzamataz Sutton Coldfield in June 2015. At the time of purchase, the school had just 38 students and now has grown to an astonishing 228 students in just over two years.
“It was my dream to own my own theatre school ever since I was in primary school,” says Nick. “When we heard about the opportunity to buy Razzamataz Sutton Coldfield we decided to just go for it. It was never our intention to buy a re-sale franchise but it came up at the right time for us and we knew the school had huge potential.”
One of the first things Nick and Gemma did when taking over was to build relationships between themselves and the staff and customers who were already at the school as Nick explains: “We were really keen to show the staff and customers that we were willing to listen to their ideas and take on board any feedback. We listened to their concerns about having new owners and made a huge effort to take the time for them to get to know, like and trust us.”
Although Nick and Gemma were quick to spot the growth potential that Razzamataz Sutton Coldfield had, even they have been surprised about how quickly their business has blossomed. “We knew we could build a vibrant theatre school with lots of students but the speed in which it has happened has really surprised us,” adds Nick. “Being part of an established franchise with all the power of the brand that is behind us has really propelled our growth. As well as our local marketing, we have the support of the national brand with a wonderful website and strong google and social media campaigns. This is something that we could not do as individuals and certainly not in the same time frame.”
Whether you are buying an existing Razzamataz Theatre School or a brand new franchise, the training you will receive will enable you to be a confident owner of a performing arts school. Every aspect will be covered from PR & Marketing, through to the latest in child legislation and practical info on how to lead your team and manage behaviour in class.
For Nick and Gemma, the direction that the school is taking is enabling them to be able to embrace every aspect of Razzamataz. “We currently have a Tuesday PM school, a Saturday AM school and in 2018, we will expanding to a Saturday PM school too,” says Nick. “We have lots of opportunities within the school and are also getting involved with the large-scale events that Razzamataz Head Office is offering including performing at the Indigo, 02 in London. We also actively raise money for the Razzamataz charity Future Fund and were extremely proud to have one of our students receive a scholarship from the Future Fund to attend performing arts college. Last year we raised some money through participating in Wolf Run, a very muddy obstacle course. We loved it so much that we are back this year with a team double the size!”
Marion Clemens, Trophy Pet Foods Wessex
“I purchased Trophy pet foods Wessex in October 2016. The previous owner had run the franchise for 10 years but had been struggling in 2015/6 due to sudden ill health. The net profit was £7,600 for his last trading year with approximately 125 active customers. As with all Trophy franchise areas, the household numbers were very generous and so the trading figures did not reflect the possibilities.
When I began my franchise business, I attended a 2-week training course which gave me confidence in product knowledge as well as how to approach people on walks, knock doors and promote the business at shows.
I was running the business alone and could only do canvassing one day a week at around 4pm for just 30 minutes before the light disappeared. I did however find Saturday mornings useful in the Winter months for canvassing but again only for a short window as people were getting ready to go out. That may all sound negative, but it meant I could hone my skills at a rate I could deal with and still manage with the day to day running of the business.
By Spring 2017 I was confident in canvasing but then had to think about how I would deal with the Summer shows. The previous owner didn't have a gazebo and after our first show in May I was fully aware that we needed to purchase a gazebo as without it we looked like a car boot sale, which didn’t reflect the quality of our product. Possibly another reason why the business was failing when we purchased it.
Gazebo purchased and we were being accepted and approached at shows. Everything progressed wonderfully and in September 2018 we hit the 250 active customers mark. The growth of your franchise will always reflect the time you can put into it. The figures show that I was averaging 5.6 new customers per month. However, there is customer retention to consider; dogs die, customers move, dogs rehomed etc, so I would estimate an average of 9 new customers each month. This was achieved with 4 shows each Summer, one evening per week of canvassing and talking to anyone who will listen about the quality of the food and how cost-effective it is. There are also recommendations but looking at my figures the biggest percentage of my customer base has come from just talking to people. I wear my Trophy branded T shirt and badge whenever possible; it's a talking point!
It's important that a franchise business not only pays the bills but also fits with how you want to work it. If you are happy with growth then relax and keep it topped up, if you need to earn more go out and get it.
If you are thinking about purchasing a failing franchise look at the area, talk to the current owner and find out what they tried, what failed and what succeeded. Then think about your ideas of promotion. Take into account the current franchisees health, time available, commitments etc that might have kept them away from promoting the business and, dare I say it, their general manner.
Being approachable, knowledgeable about your product and upbeat is a must. Being the greatest salesperson of current era isn't important. You learn as you go and get out what you put in."
Ed Pockney, Driver Hire Uxbridge
Ed Pockney bought Driver Hire Uxbridge in November 2014. At the time, it was 95th in the Driver Hire network. Today it’s one of Driver Hire’s top 20 performing offices with annual turnover in excess of £1.5m.
The transformation Ed has achieved is remarkable. During his first week, he supplied workers for 83 shifts at an average of £109. Compare that to one week in November 2018, where Ed and his colleagues covered 239 shifts at an average of £175, generating revenue of £40,350.
Using Driver Hire’s well-established business model, Ed has put his own stamp on the business. He identified the key metrics that drive business performance in temporary employment, building a culture that delivers high service levels and strong customer relationships. He concentrated on customer visits, driver retention, identified potential blue-chip customers, invested in driver training and created a positive workplace culture.
“My experiences working in global finance showed me that it is possible to build a new team and create a network of relationships and trust if the right ingredients are in place. I knew that the combination of my personal skills and commitment along with Driver Hire’s brand reputation and support would be a powerful one. So that’s what I set out to do at Driver Hire Uxbridge.
At the end of my first full year’s trading, (2015/16) I passed £1m turnover, increasing sales by 300% on the last full year under the previous franchisee."
Richard Bradshaw, Driver Hire Guildford
Richard Bradshaw joined the Driver Hire network as a franchisee when he bought our already established Guildford branch in October 2014. “When I was considering a franchise back in 2013, another reason behind my decision to buy Driver Hire Guildford was that, even as an established business, I still felt there was huge untapped potential in the area. I think I was right – we’re currently on course for our third record year.”
George Demetriou, Seniors Helping Seniors London Borough of Harrow
Seniors Helping Seniors, a non-medical elderly care franchise, exists to revolutionise retirement, whilst raising the expectation of ageing. They believe no human should leave this earth without feeling love, dignity and compassion, so when families are helped and people are gainfully employed doing work they love, they know they have succeeded.
As a Top 20 most recommended care group in the UK three years running, and with an outstanding individual rating, Harrow’s Seniors Helping Seniors is far from failing in that regard, but the territory has stopped growing because owner George Demetriou is preparing to retire.
George says: “I acquired a Seniors Helping Seniors franchise to cover the London Borough of Harrow area at the age of 71 with the intention of laying the ground work, getting the business off the ground and creating a great reputation, all at my own pace, and passing it on by the time of my 75th birthday.
"My hope was that my son would take over and fuel the growth and development of the business. However his successful career in the US is keeping him there and so this is not possible. This therefore provides an amazing opportunity for someone to take over a business with extremely satisfied clients."
To quote just one of our clients ' Seniors helping Seniors Harrow provide adaptable, responsive, totally person-centred care. The management is superb and efficient, meeting all the challenges calmly and with understanding.'
We have a dedicated team of carers, deriving great personal satisfaction from providing support and companionship to their clients," says George.
With other offices growing well, the 20-year-old care brand is thriving. Says George: “To have the opportunity to benefit from four years' hard work in establishing the business and the brand in the local community, with existing dedicated clients and employees for significantly less than the cost of a start-up franchise is a one-off opportunity not to be missed.”
The franchise is credited with five-star training and support. Training for success is their forté so turnaround is assured. Especially since the country, including Harrow, is suffering near collapse of social care. Finding and keeping the right carers has never been an issue for the brand and people need the service.
George has enjoyed establishing his business in his community and having done the leg work and grass roots marketing, George feels now is the right time to hand over growth strategy and management to someone younger.
Franchisor Christian Wilse is supporting Harrow’s sale to one lucky franchisee who will pick up the franchise at a fraction of the cost of a new franchise and will benefit from accelerated growth of an established territory. The EBITDA of the business is low currently, so this represents a big win.
Christian Wilse says: “We are delighted with the contribution George has made to our brand and we look forward to finding the right person to build on successful foundations to do him proud." And he explains “Seniors Helping Seniors’ clients and carers recommend us in such numbers that we quickly became a Top 20 care group in the UK. We have consolidated our position for the last three years. Our focus is on franchisee training which results in the delivery of outstanding care in the community. Care and support that clients and carers rave about. It’s a unique process and these processes are what will turn Harrow around when it changes hands.”
Lucy Williams, Ed’s Garden Services
Lucy, an experienced Ed's Garden Services business owner, sold her Ed's business six years ago to pursue her dream of spending a couple of years living in Bali. When she returned to the UK, she got in touch with Ed's again to find out how things had developed since she'd left the UK. At that point in time, one of our business owners had set himself the goal of exiting his Ed's business. This was for personal reasons, which had led to him not being able to run his business as profitably and efficiently as he had once had.
Lucy saw this situation as a good opportunity. With her experience, she knew she could acquire the business, apply her expertise and lock value back into it in quite a tight time frame. She envisaged getting the business back into great shape and exiting again to pursue a different challenge. This is precisely what she did and subsequently sold her profitable business to John in Maidenhead, who acquired an excellent platform on which to build in order to realise his own business ambitions. The outcome was that all parties benefited from Ed's flexible reselling structure.
Business planning for buying a resale
Suki Dehal, Lloyds Bank talks to us about the importance of business planning when looking to buy a franchise resale.
Researching at the UK franchise industry you may already have picked up that a franchise business is more likely to grow quicker and survive longer than an independent start up, so naturally banks involved in providing funds for franchisees offer more favourable terms to purchasers of franchised businesses than they would to an independent new start up. If you require financial assistance to purchase your chosen franchise you will need to prepare a structured business proposal for whichever bank you approach for funding.
Developing a business presence in a new territory can be time-consuming and costly. All businesses will usually require some form of banking facilities and many will require additional funding. With an existing business there is clear evidence of what has been achieved by the outgoing owner so projections can be based on fact and this will give considerable weight to the proposal. There are clear advantages of taking on an existing franchise that is already established. These advantages also make a franchise resale attractive to secure banking facilities for your new business.
One way to guarantee that you receive relevant, sector-specific support and funding is to approach a lender that has a dedicated franchise team, such as Lloyds Bank. In doing so, your bank manager will have a solid understanding of the challenges that franchise owners are likely will face, and can tailor the most appropriate funding to fit your requirements.
Before your first meeting with the bank manager it is important that an extensive business plan is produced. If you’ve never written a business plan before it is advisable to undertake the Business Planning section of the Prospect Franchisee Certificate which has been jointly developed by Lloyds Bank and the British Franchise Association. This modular training program of informative videos is completely free and can be accessed via the https://bfa.trainme.tv/ site. In addition to covering the financial aspects of franchising the program also provides essential insight into what it takes to be a successful franchisee.
A significant amount of time and effort should be put into your proposal as it is the first introduction the lender will have to your business. The plan should provide a detailed description of the service and products you provide, whilst outlining your objectives and strategy to build a profitable franchise. The business plan should be punchy and a common mistake is to make it too detailed with information that isn’t relevant.
Ensure that it grabs the bank manager’s interest. The bank isn’t looking for a two hundred page document going into microscopic detail however it will expect you to provide commentary on your skills and experience, business objectives, the franchise brand, local market, competitors, potential clients, suppliers, premises, staff, marketing strategy, financial requirements, available security and any contingency plans you may have considered.
The initial objective of the business plan is to help you raise finance. It is also a working document and it’s essential to review your performance against your original projections, alerting you to anything that is not going according to plan as well as identifying potential opportunities for the business.
The plan should demonstrate that you understand the business opportunity and the local market for your product or service. Most banks can provide a business planning template for you. Accountants can also provide advice in producing the plan, but remember it is your document and is too important to leave to someone else to write.
Financial projections for a franchise resale will be based upon the existing trading performance however if you are proposing to increase sales or reduce costs then clearly identify how you are going to achieve this in your plan. Forecasts for a new territory franchise are an even more vital assessment tool. Most franchisors will provide you with illustrations of possible trading performance, but it is up to you to dig deeper. Find out what the financial projections are based upon and the assumptions that have been used.
A business plan is a useful tool to help gather thoughts and set objectives for the business. It should demonstrate that there is sufficient demand for the product or service and that you have a good understanding of the market. It should also set out the competitive advantage or unique selling point your business may have.
Financing a franchise resale
Suki Dehal, Lloyds Bank outlines the key steps for financing a franchise resale.
It is good practice to send a copy of your business plan to the bank manager a few days ahead of your appointment to allow them to become familiar with the content. The document should achieve a comfortable balance between being professional yet interesting to the lender.
As your meeting approaches you should have an excellent understanding of your strategy, and it is advisable to prepare and practice a script that briefly introduces your business proposal. This projects a professional image and offers credibility to your proposition, and the depth of your research will allow you to comfortably answer any questions posed. The bank manager will naturally be interested in the operational and financial aspects of your business, and will expect you to be able to respond confidently and accurately.
Think of those entrepreneurs on BBC's Dragons Den programme. From the outset, many don't stand a chance of securing the investment they are seeking because their presentation is poorly conceived, or they don't have a good understanding of the key financial information. Consequently, they are unable to establish their own creditability and project confidence in their business.
Whilst it may seem obvious, it is essential that you are dressed appropriately for the meeting and arrive on time – first impressions count. The combination of a professional approach and a workable strategy delivered by a positive, committed owner will put you in a strong position to secure the funding that you need to launch a successful franchised business.
The level of finance available from a bank will depend upon the strength of the franchise system and brand as well as the business plan you’ve produced. Typically for well-established franchises the bank will lend up to 70 per cent of the total set up costs including working capital. For newer, less established franchise systems the amount of finance available maybe lower.
The bank will probably require security for the loan which commonly will be a legal charge over a residential property with sufficient equity. Don’t be put off they isn’t any security to offer the bank. The Government backed Enterprise Finance Guarantee Scheme maybe available for those who have a strong business proposal, but who lack security that the banks usually require.
It is sensible to have a contingency reserve fund to fall back on in case the business takes longer to get off the ground than originally anticipated.
Lloyds Banking Group continues to approve 80 per cent of customers’ requests for loans and overdrafts, and we have a range of funding options available, which includes “Lloyds Funding for Lending.” This utilises the Government’s Funding for Lending Scheme, and enables businesses to benefit from lowered funding costs on loans and offers a one per cent reduction in the interest rate for new business loans.
Once you have established a relationship with your bank and secured the necessary financial support, it is important to build on this and keep regular communication channels open. Offering regular updates around the progress of your business breeds confidence in your ability to manage your business in the current trading environment.
Self-employment can be a daunting prospect, but hard work, determination and a large amount of common sense will take you a long way towards achieving your business goals. If you set realistic goals and undertake a meticulous planning process, once you have delivered your business plan with confidence and answered all questions knowledgably, you have the basis for a successful relationship with your bank manager as you look to expand into franchising.
It is essential to thoroughly research the opportunity and fully consider the financial implications before buying a franchise. You are entering into a long term commitment and need to get the funding right at the outset. Don't try to press ahead with insufficient capital, putting unnecessary pressure on the business from the outset, but don't borrow more than you can comfortably afford to repay.
Franchise resale legal advice
David Kaye, Harper Macleod outlines the key legal stages for buying a franchise resale.
When a party agrees terms to buy a trading franchise business it is not as straightforward as simply signing a new Franchise Agreement or taking over the remaining years of operation of the existing one.
Instead the seller and purchaser having reached an agreement on price and other key terms and having the consent of the Franchisor must go through a legal sale and purchase process. There will need to be a Sale and Purchase Agreement. This is needed where a purchaser will be buying the business, assets, stock etc and/or where employees may transfer across to the purchaser whether by law or by agreement with the seller. If the purchaser is buying the shares of a company owned by the seller that operates the franchise then a share purchase agreement will be necessary.
Sale and purchase agreement: Often the franchisor has its own template being a pre-drafted agreement that contains the main terms of the agreement already in place. Whilst this can save time and expense it will often not give a purchaser the protections that it may require. For example, if employees are transferring because the business is being acquired as a going concern there are protections that a purchaser would want to build into the agreement to avoid liability for any claims arising in the period before the Business changes hands.
The content of the agreement would typically be as follows.
- Interpretation: the definitions for all major terms used in the overall body of the agreement are set out here.
- Purchase and sale of equipment, assets, stock: Details the purchase price, any purchase price adjustments, allocation for tax purposes between the parties and a dispute resolution mechanisms.
- Representations and warranties of the seller and purchaser: Provides all statements that the parties are signing off to be true. The seller has the chance to disclose anything relevant to the statements to avoid a claim at a later stage by the purchaser that a matter is incorrect or untrue. This is called a Disclosure Letter.
- Matters related to employees: Provides terms on how employee benefits and any accrued bonuses should be handled post transaction
- Indemnifications: Provides details of all indemnifications for any costs that may arise post transaction because of conditions that existed prior to the purchase and sale completing.
- Tax matters: Specifies any special tax treatment
- General clauses: various standard protections for the parties including Confidentiality and Governing law.
- The sale of a franchise can be a three-party affair with the franchisor often also agreeing to the purchase by countersigning the sale and purchase agreement, along with the purchaser and the seller.
It is therefore very important that you engage a lawyer who not only has franchising experience but also has dealt with purchase and sale agreements. You should also obtain tax advice from a qualified accountant before reaching an agreement to purchase a Business or shares in a company.
The amount that a solicitor will charge you for this work will depend upon how complex the transaction is.
It is not really possible to give a meaningful estimate of the cost without full details of what the transaction will involve. Suffice to say that the cost will be appropriate to the value of the deal and without such advice you risk losing a substantial amount. It is however vital that you always seek legal advice for buying a franchise resale.
Even if the current franchisee tells you that they used a solicitor so you do not need to, you must still take legal advice from an experienced franchise solicitor; it is essential that you always use a lawyer who specialises in franchising and is a member of the British Franchise Association.
by Martin O’Neill – Solicitor, Wright Johnston & MacKenzie LLP
Prospective franchisees sometimes have the choice between buying an existing trading business from a franchisee, or starting a new business with the grant of a franchise from the Franchisor.
If you are buying an existing business then some additional legal documentation will be required, beyond the Franchise Agreement and its related documents.
Businesses are generally acquired in one of two ways. Either 1. the entity that operates the business sells the relevant assets to the buyer, or 2. the entity operating the business is itself acquired.
It is very common in the UK for a franchisee to be a private limited company. For the purposes of answering this query we are assuming that relevant parties are private limited companies, although franchisees could be, for example, sole traders, partnerships, or limited liability partnerships (LLPs). Private limited companies are acquired through a transfer of the company’s share capital.
There are a number of factors which influence whether buyers and sellers want to proceed by way of a share sale, or an asset sale. These can relate to legalities, accounting, tax, or other practical considerations.
In addition to a Franchise Agreement, a franchise “resale” will require a purchase agreement. This will either be a Business Purchase/Asset Purchase Agreement, or, in the event that the buyer is buying the existing franchisee entity, a Share Purchase/ Share Sale Agreement.
Other relevant documents may include (amongst others):
- Confidentiality Agreements - obliging one or more parties to keep confidential information confidential.
- Exclusivity Agreements - aimed at preventing a seller speaking to interested third parties for a period of time whilst negotiations are ongoing with the prospective buyer.
- Due diligence questionnaires - seeking information on the business and/or entity to be acquired.
- Disclosure documents - used by the seller(s) to disclose information against the warranties contained in the purchase agreement.
- Board Minutes - noting authorisations in respect of transactions and changes to relevant entities.
- Shareholder resolutions
- Consents from relevant parties such as the Franchisor, landlords and lenders
- Release agreements - freeing an outgoing franchisee from its Franchise Agreement (with some important exceptions!))
- Stock Transfer Forms - detailing the transfer of ownership of shares.
- Resignations and appointments of directors
- Agreements relating to employees and directors
The above list of documents is not exhaustive and of course not all of these documents will be relevant to a particular transaction. When provided with the relevant information in respect of your intended purchase or sale, a franchising solicitor will be able to provide you with a breakdown of the costs involved in respect of the various documents required.
An experience of the franchise industry will mean your adviser will be able to help you navigate through the sale process with confidence, and provide franchise specific commercial guidance beyond the legal technicalities.
Valuing a franchise resale
The sale and purchase is based on the value of the assets and goodwill of the business. Normally, the value of the assets is based on their realisable value i.e. what the assets could be sold for in the open market, whereas goodwill is normally based on the future profit potential of the business.
The price is the amount that a willing buyer will pay to a willing seller. Often this is a multiple of the business profit but getting to the right multiple is the skill and will vary from industry to industry.
An investor purchasing a resale should expect to recoup their initial investment together with a return based on the increased value they achieve for the business during their period of ownership.
A starting point is to look at the return on investment; if you are looking for 20% (to reflect the risk of investing in the business) then this would equate to a multiple of 5 times profit (i.e. you might invest £200K for a return of £40K).
It's never as easy as this in practice as you need to look at the maturity of the business, its dependence on key customers or staff, the assets employed and so on. If you need help in valuing a business you can take advice from an experienced bfa afffiliated accountant.
Past questions for buying a franchise resale
Qu: My husband and I are thinking of purchase of a resale of care franchise. They would like us to buy as share sale although they have always said it would be an asset and goodwill sale. What shall we do and what are the risks for share purchase?
Answer: You asked about share sales and whether there are risks attached. As is often the case there is no simple answer to this. A seller will be usually far better off financially (post sale taxation) if they sell the shares in a business rather that the assets/goodwill. A purchaser will have a smoother entry into the business because all the staff, assets, property, leases and contracts all transfer to the new owners as part of the share sale process. There is, for example, no TUPE transfers for the staff to go through. This is especially helpful where, for example, CQC accreditation is required. In some care franchises the franchisor stipulates the sale must be a share transfer process.
Qu: I am considering buying a franchise. I have been offered the opportunity to buy the existing business that has been trading for 14 months as the owner wants to continue growing the company.
They have asked for that I sign a confidentiality agreement and give a £2000 deposit to look at the financial information such as turnover and profit etc (although they have already given me a rough indication of turnover).
Could you advise whether this is normal practise for selling a business as a franchise? It seems strange to me that they are asking for £30,000 to invest in a business that I haven't seen the figures of. If the figures don't add up and I choose not to invest, or I cannot get financial backing etc, then I lose £2,000.
Also, I would surely perhaps struggle with getting the financial backing if I do not have that information. The signing of the agreement I have no problem with but I am very unsure about the money. What is your advice?
Answer: I think you are wise to be cautious. Signing a non-disclosure agreement is one thing (and must be insisted upon by the selling franchisor) but no one should be asked to pay a deposit, especially a non-refundable one, just to see the figures of a franchise business for sale.
Qu: I would really appreciate your help and advice on the following two questions. I am considering buying an existing franchise which is 3 years into its 5 year lease agreement. If I were to buy it and in 3 years time wish to resell the business, I guess as it would then be on a rolling contract and therefore its value would then be significantly less? Or if I was to walk away from the franchise, could I continue the business under a private name within the same area?
Answer: The usual process when purchasing a franchise resale is for the selling franchisee’s franchise agreement (FA) to be terminated at the point of completion of the sale and a new FA issued to the purchaser by the franchisor. This is done for the benefit of both parties.
Qu: I am interested in acquiring an existing franchise. I would like to understand the risks associated with this transfer especially to someone who is new to this industry and most likely to the area of the franchise.
Answer: Purchasing an existing business has many benefits as I am sure you realise. Cashflow from day one, an existing brand presence in the local marketplace, a client base etc etc. Clearly there must be downsides also but mostly these can be minimised with careful screening of opportunity.
Qu: I am looking at buying a well-known children's franchise which I have known for many years as a customer. The current owner bought it 2 years ago and it is now loss- making, having been very healthy 2 years ago. I am most interested in the legal requirements here and have been told we will each need to retain our own solicitor to transfer the business at a rate £2000 for a business sale agreement and further £1000 for the franchise purchase. Does this sound reasonable and necessary?
Answer: The best advice is always to transfer the ownership of a business through a legal agreement and that of course means engaging solicitors which do, as you state, cost money. That said most people would not consider a house sale or purchase without a lawyer involved to protect their interest and the same applies with a business sale.
The level of detail that is required will vary depending of the scale of the business involved and its complexity and as you have only stated it is a well know children's business I would guess it is smaller rather than a larger operation. You also state it is loss making so the selling price is low.
I would always take legal advice and always use a solicitor that is affiliated and accredited by the bfa.
If the sale is being done through the franchisor, rather than from the selling franchisee that may give you the confidence to waive a solicitors input. That said the fees you quote are quite reasonable for legal advice.
Qu: I am looking at a franchise resale. The asking price is about £10,000 more than the launch price. This is to purchase the goodwill of the ongoing customer base. What criteria should l use to value this?
Answer: When a business is sold by an existing franchisee the value of the Goodwill business is usually calculated as a multiple of the transferable profit that business generates. Transferable profit is that which the buyer can reasonably expect to continue to make and so excludes items such as tax, interest and any money taken out by the owner. That multiple can be anything from 1.00 times to 4.00 times depending on the business and the sector in which it operates.
The original franchise set up price is not usually considered when reaching a valuation because this is charged by the franchisor to cover the initial franchise fee, their costs in establishing a new franchisee and pay for their training.
You do not say if the business is being sold directly by the existing franchisee or by the franchisor on their behalf. However, the value of any business, at whatever level of investment, is that which a purchaser is willing to pay and valuation calculations can only ever be a guide to indicate the right 'ball park' for the offer.
Qu: Can l ask why there are so many greeting card franchises for resale; are they not good franchises to invest in?
Answer: There are a number of greetings card franchises being offered as resales but given the size of the market and the number of franchisees involved in the various greetings cards companies, it really isn’t that high a number.
Most mature franchise organizations will expect to have a turnover of franchises each year with many reaching around 10% of the network strength. So if a franchisor has 60 franchisees they could expect to have around 6 or so for sale at any one time. With six or seven franchisor networks within the UK it is easy to reach quite high numbers of potential resales in a single sector each year.
Certainly it doesn’t mean there is a flaw in the business model or concept.
Some franchisors do not publicly advertise their resales and only introduce prospective franchisees to a resale once they have applied to join a network and been approved. They may also use an external agency such as my company Franchise Resales to facilitate the resale process for them. It is a healthy process for franchise networks to have many resales as this demonstrates the lifecycle of being a franchisee, provides an eventual exit route by being able to capitalise on your investment and hard work. It also brings new franchisees into a franchisors network to grow the individual businesses further. It additionally provides the opportunity for new franchisees to buy into an existing business with all the benefits that brings, rather than having to start up from scratch with a new operation.