30 Years Of Business Law Experience

Remember you START Your Franchise With Zero (0) Customers

On Behalf of | Mar 31, 2019 | Firm News |

I remind prospective Franchisees that the number of customers they have when they open their doors is Zero (0). Franchises have many benefits and advantages over re-sells (Biz Ops) but this is not one of them.

It really is a good idea to compare buying a franchise (from the Franchisor) versus buying an up and running Biz Op. Although franchisees often have the benefit of a knowledgeable franchisor, training, on-going support, existing marketing and Logos, (hopefully with some brand recognition), the time necessary to build a customer base is always a major cost and risk.

You should take a look (probably with the help of a business broker) at existing Biz Ops which have a track record and review their gross revenue, net income, customer base, product acceptance, etc. One approach to comparing the two is to total the following: (i) the cost to purchase a franchise, (ii) all the expenses necessary to open the business, and (iii) the cost necessary after opening to build a customer base to support operating expenses and a reasonable profit (don’t rely on Item 7 of the Franchise Disclosure Document – “FDD”). Then compare that amount to the purchase price for an existing Biz Op. If the cost to buy a Biz Op is less, then consider if the other benefits of a franchise are worth paying the higher price. Finally, consider if your best bet is to buy an existing Biz Op that is also a franchise.