How a Franchise Agreement and a Franchise Disclosure Document differ
There are two documents that are of vital importance...
Under many Canadian franchisers, you can buy an existing franchise business that the owner wants to sell. While this might be more costly than opening up a new franchise, you get the benefit of an established business that is already up and running with a customer base. Usually, franchise resales have to be approved by the franchiser, so you'll still go through a process that is similar to what a new franchisee would undergo. In addition, you need to evaluate the franchise itself carefully and gauge the state of the current franchise location you want to buy.
It's entirely possible that a successful franchisee is simply looking to retire or move on, but sometimes a franchise is being resold because the owner is struggling. Before you decide to buy a current franchise location, keep an eye out for these red flags.
Lack of proper upkeep
A franchise that is doing well should appear well-maintained. If you see things like peeling paint, water damage or broken equipment, the franchisee may be hurting more than you have been told.
Frequent slow times
Visit the franchise multiple times on different days and at different times. If you're not seeing a lot of foot traffic or hearing a phone ringing or emails come in (for a service or mobile franchise) most of the time, it could be that the location isn't really turning much of a profit.
Employees who are dissatisfied
While there will always be a complaining employee here or there, a business that is struggling tends to have unhappy workers. They may be tired of poor business practices or feel nervous about the stability of their employment because they see things are not going well.
Subpar franchise standards
Franchises tend to have specific requirements pertaining to products sold and services rendered to maintain quality and consistency across the system. If these are not being upheld--particularly when corners are cut to save cash--it's a signal that the franchise is not profitable.
Spotty financial records
A successful franchisee isn't going to attempt to hide a thing when it comes to the numbers. If you think numbers are missing or there are discrepancies, the franchise shouldn't be truly considered until you are able to see complete and accurate records.
Keep in mind that you can still buy a struggling franchise; it's very possible you will be able to make the setup a success. The key here is to know exactly what you receiving so you pay the proper price and have an idea of what needs to be fixed when you take over.
