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There are a number of reason why someone would want to sell their current
franchise, or small business. Owners may suffer from burnout, want to
retire, take a job or try a new business opportunity. Many franchise
owners may also want to sell instead of renewing their franchise rights.
The first thing you should ask when considering buying an existing business
is why does the owner want to sell? Is the business doing poorly? If
so, make sure its something that can be corrected. If the problem is
inherent to the business, like too much competition, or poor location, you
should look elsewhere for opportunities. You should also know that you
must get the permission of the franchisor in order to transfer the business to a
new owner.
There are a number of reason why you should consider purchasing an existing
business.
- Licenses already exist, i.e. liquor license.
- An existing business means there are already customers there.
- You have financial history to work with.
- Turn key business- you don't have to order any new equipment, or train
employees.
- Less risk since the business already has a track record.
- You can very often request to be trained by the current owner.
If you have decided on a place, you will probably need to draw up a letter of
intent. The letter is an agreement to consummate the transaction.
Both parties should be very clear as to whether the letter of intent is a
binding preliminary contract or merely a memo from which the formal legal
documents can be drafted once the due diligence is completed. A price
range should generally be established with a clause that sets out the factor
that will influence the final price. You don't want to set a price in
stone, because you may find out the seller was lying about what the business
really earns.
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