Private Business or Franchise Ownership
Many advantages and disadvantages whether to own a private business or a franchise (There are over 3,000 franchise businesses). Preference to choose either type of business should be based upon, the most suitable interest for success, and having any background knowledge or experience. Both types of businesses, provides goodwill towards products, services and custom base, that has been created, which is invaluable or hard to equate in terms of valuation. Certainly owning a franchise is more restrictive to business decisions, which is handled by the franchise corporation. If an entrepreneur wants to take control of all business decisions, then owning a private business is the best approach. First step should be spending time visiting the location, and observing the number of customers and how many purchase items. Further details are listed.
Consider when purchasing a private business, if the business has lease. Determine if the lease allows a new owner to purchase the business, will the lease be renewed for new ownership, and what are the penalties for breaking the lease. Examine whether the business location has sufficient space for expansion or relocating to provide more space. New franchise owner is restricted to move the business to a new location, without fringing upon an area, were an existing franchise location, already exist or prohibited by the franchise corporation.
When purchasing a private business, the new owner may need financing, usually not easy to obtain, because there is no proven track record of the new owner (Unless a previous business was owned.). United States Small Business Administration can help provide financing. Operating a franchise, the corporation often helps to provide necessary financial assistance or loans for new owners. Franchise may consider previous financial success, of the franchise location, when granting loan, besides the financial assets of the new owner.
Having insurance for any type of business is essential to cover any unexpected loss, damage expenses, and protecting personal assets. Insurance policy should cover: flooding, windstorm, fire, lightening, earthquakes (certain regions of the country), arson, theft, fraud, death or disability, civil lawsuits, business interruption, vandalism, roof damage, foundation damage, broken glass or damage to building and structure caused by looting, and or rioting, terminate or insect damage, and mold/fungus damage. Also, consider purchasing any medical insurance, and umbrella policy. Remembering that a higher deductible will reduce insurance premium. Business owners can refer to the website: SpendonLife.com to receive quotes on various types of business insurance. Franchise Corporations have insurance requirements, regarding ownership and minimum amount of insurance coverage. Franchise insurance policy would cover the basic insurance needs, which are similar to owning a private business. National Franchise Programs Corporation provides all types of insurance coverage for various franchise ownerships (Toll Free telephone Number: 877 – NFP – CORP), and InsuranceServices.com (Toll Free telephone Number: 800 – 296 – 4001).
When signing a franchise contractual agreement, the franchise owner, must accept all the terms: Purchase supplies, merchandise, (Including any generic products) and equipment exclusively from the franchise, maintain certain hours of operation or open twenty-four hours a day, posting sales when instructed, and more. According to the agreement, the franchise will decide all advertising related to brand or trade name. Also, provide training, financial support, and other related operational support. Franchisor has legal rights to terminate the franchise agreement, if there is any violation of the agreement or failure to meet financial obligations. Owning a private business, provides the ownership flexibility to make business decisions, regarding the purchase of supplies, merchandise, number of employees, train employees any manner, and selling any new products.
Franchise agreement provides information regarding any royalties or fees, which the franchise owner must pay to the corporation. Royalty fees are usually between, one to fifteen percent of gross sales. This expense has to be considered, in regards to sufficient income, when purchasing an existing franchise. If the previous owner was able to pay the royalties or amount, with adequate gross income, business is likely to continue operating the same or better with new management. Sometimes a franchise will charge extra for advertising. These expenditures are not incurred owning a private business, but additional cost for advertising and other expenses are paid by private ownership.
Deciding to purchase a franchise or private ownership of a business, recommend hiring an attorney. This will be very helpful during negotiations, and likely prevent any unexpected costs or liabilities. According to federal regulations, a franchise must provide full disclosure at least ten days before signing a contract, and State laws have further regulations regarding franchise agreements. Before signing a franchise agreement, should evaluate: Track record of franchise, cost to purchase, territory will be exclusive, what products will be sold, any services provided by the franchise, past historical data related to future profits, and full disclosure of any related bad news, regarding the history of the franchise (fraud, embezzlement, bankruptcy or unfair business practices). Private ownership should evaluate, previous financial records, including tax records from previous quarters and years. Also, examine all expenses, including salaries, pension funding obligations, medical expenses, rental agreements or leases, and determine what are fixed and variable costs. Consider hiring an independent auditor, and consul with someone that has experience, purchasing or selling the business of interest. Ask the employees their opinion, how well the business is operating, and ask for suggestions that will improve the business. Inquiry at the city and state government agencies, for any business violations, including the department of health, and fire code enforcement.
Purchasing any type of business, the new owner should strive to enhance the business operation, both productively and profitability, to succeed. The website QualityFranchise.com, is the leading resource for the franchise industry, and provides franchise opportunities throughout many markets. Also, contact local Small Business Administration for a consultation.
