Buying a Florida Franchise
Should You Buy a New Florida Franchise or Existing Florida Franchise?
There are many choices when it comes to buying a Florida franchise. What kind of franchise should you buy? Where should it be? Who will it serve? But one of the biggest is whether you should purchase an existing Florida franchise or start a new one from scratch. Both answers come with pros and cons.
New franchises often have to break new ground, both literally and figuratively. If it is a brick and mortar business, the following steps are necessary:
- Find a location for lease or purchase
- Build or repurpose the facility
- Purchase required equipment, furniture, etc.
- Hire and train staff
- Market to surrounding community
But new franchises also come with their own benefits:
- Lower asking price than established businesses.
- Offset costs for building the business
- New equipment and facilities
- No bad reviews or negative experiences with prior owners
Existing franchises usually costs 30% more than starting a new franchise. But, having facilities and equipment in place, an established customer base and experienced staff are all benefits. The value of these benefits, including the ability to jump in and start earning right away without investing additional capital, may outweigh the premium. This depends on the franchise.
8 Steps to Purchasing a Florida Franchise
Contact Anchor Business Brokers
Starting off right is the best way to set yourself up for success. At Anchor Business Brokers, we begin by assessing your background, current position and goals to help identify franchises that may suit your needs. We think outside of the box to open your mind to franchise opportunities that may be in industries that you may not have otherwise considered but would be a good fit for you.
When you are considering your options, take a look at the detailed business overview that the seller provides to see if this opportunity is attractive to you. Is it in a good location? Are sales rising? Falling? Steady? In an industry that you find interesting? Is there anything happening in the foreseeable future that will increase its profitability or decrease its value? Does it make enough money to meet your needs? Can you afford it? This is also a good time to contact the franchisor to see if you meet their requirements for purchase.
Meet the Franchisor
Once you have found 1 or more suitable candidates, we will introduce you to the franchisor. Usually this will include a visit to their headquarters to get a behind-the-scenes look at how things work and ask questions. As much as you are evaluating them, this is also their opportunity to evaluate you and determine if you would be a good fit for their franchise.
Once you sign their Non-Disclosure Agreement, they will provide you with hard facts about the present state of the business. You will also receive the Franchise Disclosure Document (FDD), which contains comprehensive information about the roles of the franchisor and the franchisee, including costs, franchisor controls and contractual obligations. The FDD can be a rather intimidating document, up to 200 pages and full of legal and financial language. We will review and guide you through it, highlighting the most important clauses for your consideration.
Meet the Seller
If you like what you see at the franchise headquarters, it’s time to meet the seller face to face. Although meeting in person is not strictly required, this is your opportunity to ask questions about the business and see what type of person you are dealing with. This will also be the time to inspect the premises. If you are buying a new franchise, this step does not apply.
Make a Realistic Purchase Offer
It is generally in everyone’s best interest to make a purchase offer before investing time, effort and money in the costly due diligence process. If anything unfavorable is revealed during the due diligence process, you can easily cancel or adjust your offer. Anchor Business Brokers will present the purchase and sale agreement to the seller on your behalf, along with a deposit of good faith held in escrow for both parties’ protection. Negotiations will be handled by us on your behalf. You will be presented with your executed contingent purchase agreement.
We have a standard form contract that we can help you put together, although we strongly recommend having your attorney review it before we present your offer.
Your purchase contract will contain:
- Terms of the offer including price, down payment and financing (interest rate, loan period, etc.).
- Conditions including covenants not to compete, consulting agreements, training agreements, accounting and apportionment of work-in-progress, assumption of liability.
- Contingencies such as approval of books and records, equipment, inventory, assignment of leases or loans and any other items incorporated into the terms of the agreement.
You will also have to demonstrate of your financial ability to buy the business. This may take the form of financial statements or other proof.
With the contract you will have make an “Earnest Money” Deposit Check, typically ten percent (10%) of the purchase price with the contract.
Perform Due Diligence
At this point, you will bring in your advisors, including attorneys, accountants, business appraisers and/or other professionals, to scrutinize the seller’s financial documents and research any legal or financial obligations that have not been disclosed or that you have not been made aware of.
It’s a good idea to closely examine operations and finances to determine if the business requires further investment before it meets your needs and plans.
Your team will typically have 5-15 days to review books and records, inspect the business premises and take other appropriate steps to verify that everything that the Seller has claimed is accurate and remove all contingencies. If anything about the business fails the due diligence process, you may choose to withdraw, change or amend your purchase offer.
the money you placed in escrow will be returned to you if you withdraw your offer due to a negative finding during due diligence, the cost of the due diligence is non-refundable.
Secure Financing and Make a Leasing Deal
If you seek some form of financing, including Small Business Administration (SBA) financing, bank loans, Venture Capital financing, Angel (private investor) financing, or seller financing, we will advise you on the each of the various options and help you locate the right lender.
This is the time to secure utility transfers, merchant service accounts, perform inventory counts, and contact the owner of the property to secure a deal for the physical premises of the business. We will go over guidelines to help avoid any disruptions to the business during the transition process and make the transfer of ownership seamless as possible.
Close the Sale
The sale is usually complete once the documents are signed with an attorney and you complete payment of the balance, preferably via cashier’s check or wire transfer, for the amount due.