When you Buy a Franchise Pretend Youíre Selling It in Five Years
by Ed Teixeira
When individuals purchase a franchise most will plan on selling the
franchise at some future date or operate it until their children can take it
over. Iíve encountered some individuals who plan on operating the franchise for
the long term until retirement. If youíre considering buying a franchise a good
approach to take is to plan on selling the franchise as part of your analysis.
Learn why this strategy can be helpful.
When evaluating a franchise opportunity it might be useful to consider: What if
I wanted to sell the franchise in five years? This scenario may not be your
actual objective, however, it can change the way you evaluate and consider a
specific franchise opportunity. It can create a sense of urgency and a timeline
that will emphasize certain aspects of the franchise. Private equity funds and
venture capital firms take a cautious look into potential businesses they might
invest in. The reason is because they want a return for their investors in a
period of 3 to 5 years. This benchmark requires them to evaluate an investment
opportunity with a critical eye. You can use this same approach, although you
may not have the benefit of Ivy League MBAís to perform the analysis.
In addition to the questions and areas that ought to be a part of any
franchise evaluation lets place a bit more emphasis on the following areas:
- How quickly will the franchise reach profitability? A key
item in any evaluation, however, in this case itís key.
- Is the franchisor stable with a consistent track record of
success? Has the franchise experienced some variability in its
growth and performance?
- Is there little or no franchisee litigation?
- Does the brand have good market penetration? Is the
franchise well positioned in specific markets or dispersed in
various markets. Strong franchise concepts like Panera Bread
require a minimum of three franchise locations in a market.
- Does the franchise leadership possess sustainable visionary
skills and leadership? As a franchise system grows franchisor
leadership must be capable of administering this growth.
- Does the franchisor have a strong balance sheet and a record
of consistent income?
When evaluating a franchise opportunity it can be useful to establish a timeline
for operating the franchise. Although this may not be your actual objective it
can lead you to evaluate a franchise opportunity in a different way. This
evaluation can be more critical but the result may raise your potential for
success and lower your risk of failure.
© 2011 FranchiseKnowHow, LLC
Ed Teixeira is the President of FranchiseKnowHow, LLC. He can be reached at