1. Franchise Resale Pricing

The price of a franchise resale is primarily determined by the operating income the location is currently achieving. This income-based valuation reflects the business’s actual performance and profitability, making it a key factor in negotiations. For buyers, understanding the franchise’s financial statements and verifying income claims is crucial.

Check out our guide to understanding cash flow to learn more about business sales, expenses, and growth. 

2. Maintaining Brand Value in Franchise Resales

Franchisors have a vested interest in ensuring that franchise resale prices do not dip too low. A low resale price can negatively impact the perceived value of the franchise brand as a whole. To prevent this, franchisors often set minimum price thresholds and actively monitor resale transactions to maintain brand integrity and value. 

Due to the franchisor’s guidelines and controls, franchisees may have limited ability to independently determine the resale prices of their franchises.

3. Franchisor’s Role in the Franchise Resale Process

Buying a franchise involves significant franchisor participation in the sale process. The franchisor typically drives the sale process, requiring potential buyers to undergo a thorough vetting process. This vetting ensures that the new owner is financially stable, experienced, and capable of maintaining the franchise’s standards.

4. Demand for Significant Down Payments

To promote financial stability and reduce risk, franchisors may require buyers to make a substantial down payment, sometimes up to 50% of the purchase price. This down payment ensures that the buyer has a significant financial stake in the business and is less likely to be over-leveraged with debt, which could jeopardize the franchise’s success.

To help you get started, we’ve put together a short guide on how to finance buying a franchise. 

5. Franchise Fees on Transfers

Franchisors usually charge a franchise fee on the transfer transaction. This fee can vary but generally covers the costs associated with transferring ownership, including administrative expenses and the cost of training the new owner. Buyers must factor this fee into their overall budget.

6. Working Capital Needs for Buyers

In addition to the purchase price, buyers need sufficient working capital to cover operational expenses, inventory, and unforeseen costs during the transition period. Having adequate working capital ensures that the business can continue to operate smoothly and meet its financial obligations from day one.

7. Mandatory Upgrades Before Closing

Before a franchise resale transaction closes, the franchisor may require completing necessary upgrades to the location. These upgrades ensure that the franchise meets current brand standards. If these upgrades are not completed, the franchisor can opt to withhold estimated upgrade costs from the sale proceeds to ensure compliance.

8. Closing Documents and Funds For Franchise Resales

To protect their financial interests, franchisors might require closing documents and funds to flow through their lawyer. This ensures that outstanding fees or debts owed to the franchisor are settled before the seller receives the sale proceeds. This step helps maintain financial clarity and accountability.

9. Full-Time Franchise Owner/Operator Requirements

Franchisors often prefer that the new owner be a full-time operator. They look for individuals with relevant skills, experience, and a commitment to running the business hands-on. This approach helps ensure the new owner is fully engaged and can drive the franchise’s success through active management and leadership.

10. Adherence to the Franchise System

New franchisees must adhere strictly to the established franchise system. This includes following operational procedures, marketing guidelines, and other franchise-specific protocols. Compliance is critical to maintaining brand consistency and avoiding potential legal disputes with the franchisor.

Navigating the intricacies of franchise resales requires a keen understanding of both the franchisor’s and franchisee’s perspectives. As a business broker, my goal is to help buyers and sellers understand these nuances and facilitate smooth, successful transactions. By being aware of the franchisor’s requirements and preparing accordingly, potential buyers can confidently step into ownership, ready to take the franchise to new heights. 

If you’re considering buying or selling a franchise, contact me for expert guidance tailored to your unique situation.

The post Everything You Need To Know About Franchise Resales first appeared on Acuity Business Group.

Get to know yourself

Different personality types are better suited to the franchise business model.  Franchisors expect franchisees to operate within the established systems, processes, and rules.  There is not always room for creativity or impulsivity.  For someone who finds it difficult to operate within a highly regulated environment, adapting to the franchise business model may be difficult.

It is also important for business owners to know where their strengths and interests are.  For example, someone who is tech-savvy may excel in a franchise concept like cell phone repair or IT solutions for small businesses.  A person with a background in education may gravitate towards a concept like tutoring or educational products.

Learn what franchises are available

Many people still equate a franchise with businesses like fast food or a retail concept such a pet supplies.  There are hundreds of types of franchise businesses that are profitable options.  Start by doing some online research to learn more about the available options.  One great resource is Franchise Canada Online.

Know your numbers

Before making an offer on a franchise, you need to have a firm grasp on two important sets of numbers.  These numbers are what you can afford to spend and franchise costs.  Reviewing your financial situation should be done with a qualified accountant or bank officer that has experience working with small business owners and franchises.  In addition to the cost to purchase the franchise, you also need to confirm ongoing expenses such as franchise fees, inventory or equipment, and employee costs.  These expenses should be assessed alongside sales projections and other financial information included in the franchise disclosure document.

Understand your local demographics

Take a look at what businesses are in place locally and what is lacking.  Understanding what products and services are currently being underserved despite a demonstrated need is a great way to narrow down your franchise options.  Take a look at things like the local demographics, infrastructure, and areas similar to your own where franchise concepts are thriving.

Look for agile franchisors

This year all types of businesses had to be creative, flexible, and agile in response to the global pandemic.  When assessing franchisors, take a look at their ability to successfully pivot things like offerings or delivery methods during these past few months.  Also look at how franchisors have stepped up to support franchisees, both during the initial phase of the pandemic and ongoing.

Franchise businesses have long been a great model for new and experienced entrepreneurs.  Taking time to consider the five things listed above is one way to start down the road to a successful franchise purchase.  If you have questions about buying a franchise, contact us to learn how we have helped people just like you to make a successful franchise purchase.

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Quick service restaurants 

According to the 2019 Franchise Canada Franchising Trends Report, there has been a 34% growth in quick service restaurant franchise listings over the past five years.  An emerging popular niche within the quick service restaurant sector is ethnic casual foods.  Throughout Canada, more people are looking for flavourful, healthy, and unique dining experiences both inside restaurants and to have on the go.

One of the benefits of quick service restaurant franchises is that many of the established brands within this sector have been quick to recognize and react to customer preferences, enhancing the customer experience and promoting repeat business.  One key preference that quick service restaurants have responded to is facilitating access to food quickly without having to leave home or even make a phone call through the implementation of online ordering and meal delivery services.  Through embracing online ordering and delivery services, quick service restaurants are consistently and successfully reaching customers who would have been unlikely to visit a brick and mortar location.  These franchises are serving a larger customer base without the hassle of expansion, both in staff numbers and physical space.

Educational products and services 

Franchise Canada reports an astounding 91% growth in educational products and services franchise listings throughout the past five years.  These franchises include businesses such as learning centres, programs, and educational products geared to learners from preschool through to University-aged.  This robust sector meets the needs of learners who are looking for a solid foundation in general skills and academics as well as those who want to experience a focused approach in a single area of interest.  Educational service franchises are multi-dimensional and offer a variety of revenue generating options such as tutoring, learning materials, monthly memberships, camps, afterschool care, and parties.  This gives owners a diversified income stream.

Health and fitness 

Health and fitness franchise listings over the past five years have experienced 35% growth.  A long-standing player in the franchise game, health and fitness options continue to be in demand.  From mobile fitness consulting to specialized workouts and full-service gyms, there are a variety of successful franchise models operating across Canada.  One of the benefits of many health and fitness franchises is recurring memberships that help owners to accurately predict baseline monthly revenues.

These are only three of the sectors that have proven successful for franchise models over the past five years in Canada.  While diverse in their offerings and target customers, they share several things in common such as

• Established business processes and procedures,
• Brand recognition,
• Marketing support, and
• Expert analysis and response to emerging customer trends and preferences.

Owning and operating a franchise in Canada is an option available to new and experienced business owners.  Franchising takes some of the uncertainty out of business ownership and provides owners with the opportunity to grow through the acquisition of additional franchise locations.  Despite the many advantages of this business model, it should be treated with the same due diligence as opening a brand new business.  The right team of advisors, including a qualified Business Broker with franchise experience, is essential for success.  Working together, advisors and business owners can ensure the owner has the required funds to purchase and operate the business and that the franchisor is offering demonstrated value in exchange for franchise fees.  If you are ready to buy or sell a franchise location, give Acuity Business Group a call to learn more about how we can make the process easier and more successful.

The post Franchising trends in Canada first appeared on Acuity Business Group.

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Depending on what type of franchise you are buying, there can be significant upfront costs.  These costs may include the price of the business, franchise fees, working capital, and inventory.  Many prospective franchise owners do not have the amount of liquid assets required by the franchisor.  There are different ways owners can finance their purchase.

Business Development Canada

Business Development Canada is a financial institution devoted exclusively to business owners.  They provide financing for a range of business expenses including

• Purchasing a business,
• Buying equipment,
• Purchase order financing,
• Transferring a business, and
• Working capital.

While traditional banks may be reticent to provide financing for a franchise purchase, Business Development Canada is committed to helping business owners be successful.  In addition to business financing, the organization also offers advisory services to help with business management, revenue generation, and operational optimization.  Acuity Business Group has worked directly with Business Development Canada on several occasions to help clients secure financing for a business purchase.

Government Grants

The Government of Canada offers a wide variety of financing options and grants specifically for business owners.  Financial assistance includes grants, loans, capital investments, wage subsidies, private sector financing, and tax credits.  Special grants can be accessed based on where your business is located, service and/or product offerings, and owner demographics.  Similar to Business Development Canada, the Government of Canada also offers additional resources to help business owners with financial planning, accounting, and budgeting.

Family and Friends

It is not uncommon for business owners to approach family and friends for financial support when they decide to buy a franchise.  This can be an exciting opportunity for people to be part of a business owner’s success!  Before exchanging any funds, all involved parties should document in writing the terms of the loan including things like the loan amount, interest rate, and repayment terms.

It is important to remember that many Franchisors will insist that the buyer provide anywhere from 40% to 60% of the purchase price as liquid cash (i.e.: unencumbered cash sitting in the bank).  They also require that buyers have initial cash on hand to pay for inventory, legal fees to put towards setting up a corporation and reviewing franchise documents, and more.  The reason for this is that the Franchisor does not want the new Franchisee to take on too much debt.  It can be stressful enough as a new owner to build the business up without having to worry about high debt payments.

Working with an experienced business broker can be a great way to determine the pros and cons of various financing arrangements and help get documentation in place to make a successful request.  If you are ready to join the exciting world of franchise ownership, contact Acuity Business Group to learn more about how we can help!

The post How to finance buying a franchise first appeared on Acuity Business Group.

While a business for sale transaction seems relatively straightforward, it is anything but.  Here are just a few of the things that can go wrong when business owners try to sell on their own.

• The business is priced incorrectly and does not attract qualified buyers.
• The business sells for far below its actual value.
• The business never sells.
• The business owner spends countless hours screening buyers.
• Confidential business information is compromised.
• It is determined well into the deal that a potential buyer does not have the financial means to purchase the business.
• The transaction is drawn out due to delays caused by other parties such as partners, accountants, or lawyers.
• Business operations are interrupted due to lack of owner attention and the value of the business decreases.
• The required tax and legal documentation are not properly prepared.
• The terms of the deal allow for significantly delayed payment.
• Payment never comes to fruition due to a poorly executed deal.
• Due diligence is not completed properly, leaving the owner open to future liability.
• The deal results in significant tax liability.
• Conflict arises between the business owner and the potential buyer.
• The landlord prohibits the lease transfer.

Those are just 15 of the countless things that affect almost every business for sale transaction.  Simply dealing with one or two of these issues could take up hours of a business owner’s time and still cause the deal to fall apart.  When selling a business, the number one way a business owner can ensure success is by working with a qualified business broker.

One of the biggest mistakes that business owners make is waiting far too long to start planning for the sale of their business.  The whole process can take upwards of two years and there is really no such thing as starting to plan too early.  When you work with Acuity Business Group, we help sell your business by providing support and expertise including:

• Identifying the best time to list your business for sale,
• Coaching to help improve the business and increase its value,
• Conducting a thorough and expert assessment of the value of the business,
• Creating and implementing a marketing strategy designed to attract qualified buyers, and
• Helping you prepare a successful exit strategy.

If you have a small to mid-sized business in Western Canada that is consistently achieving annual sales between $500,000 and $5M, then we can help you start planning for the successful sale of your business.  Contact us to discuss your business goals!

The post Most business owners fail when they try to sell their business first appeared on Acuity Business Group.

Many business owners will try to sell their business on their own.  Since they know the business inside out, owners assume they are the best person to sell it.  Business owners who try to sell independently find themselves caught up in a long and arduous process and they end up leaving money on the table or even worse, walking away without selling the business.  Statistically, it is believed that less than 5% of businesses are successfully sold by an owner. 

There are numerous benefits to working with a business broker and here are three ways that it will help you sell your business.

1. Ensuring your business is ready for buyers

Just because a business is running well doesn’t mean it is ready to hit the market.  There are several steps that should be completed before a business is listed for sale.  Business owners often don’t know this because their area of expertise is in running their business, not knowing how to sell it.  A qualified business broker will help by 

• Properly evaluating and pricing the business,
• Drafting a plan for identifying and remedying deficiencies,
• Helping to create a customized business plan and exit strategy, and 
• Identifying opportunities for growth and improving the financial health of the business. 

A lack of seller preparation can cost owners the sale, cause the business to stagnate on the market, or result in low ball offers from potential buyers.

2. Handling potential buyers 

Interviewing and screening potential buyers is a time consuming task when it is done properly.  Business owners simply do not have the time to properly devote to this process.  Some business brokers might just send interested parties an online questionnaire to complete but that rarely results in identifying a qualified buyer that is ready to make an offer.  Our buyer screening process is extremely hands on and involves phone and face to face contact with potential buyers.  We ask direct and pointed questions about finances, liquid cash, and business experience.  These conversations can be long, uncomfortable, and difficult at times but they must happen.  A rigorous buyer screening process is necessary to identify who is able to make a reasonable offer on the business.  It also helps to maintain confidentiality by ensuring details of the business are not provided to people who ultimately will not be able to close a deal.  

3. Closing the deal

When an offer is made on a business, there is an exceptional amount of work that must be done to ensure the deal closes.  A business broker is your best bet for closing the sale of your business.  The amount of additional people involved in a deal increases once an offer is made.  Lawyers, accountants, financial representatives, and business partners on both sides need to be held accountable for their contributions and this is no small feat!  Keeping everyone on track, communicating status updates, and mediating issues that arise is a big job that must be handled appropriately.  One misstep, one miscommunication, or one missed deadline can derail a deal and cost the business owner the sale of the business.  

Business owners wear many hats and have a wide breadth of expertise and experience.  This doesn’t mean they should handle the sale of their business on their own.  A qualified business broker is the key to selling successfully and with less stress.  If you are ready to sell your business, contact us to find out how we can help.  

The post 3 Ways a business broker will help you sell your business first appeared on Acuity Business Group.