Should I buy an established business or a a franchise?
Starting a business doesn’t always mean starting from scratch.
You may wish to consider buying an established business which already has a proven track record.
Whereas, franchising allows one business to operate under the trading name of another business’ established brand and sell its products and/or services for a specified period.
Any purchase or franchise decision shouldn’t be taken lightly. You should consult a qualified business adviser, accountant or solicitor for advice before deciding whether to buy a business or franchise.
Here is our 5 point checklist for buying a business or franchise:
Franchises in Australia are regulated by the Franchising Code of Conduct, which you should consult first. Items you will want to consider include:
- Initial buy in and ongoing costs such as commissions.
- What’s costs are shared and what do you get for it, such as marketing and training?
- What restrictions are there on marketing your franchise, what’s the approval process for marketing activities?
- What happens if you want to sell the franchise? Who owns the customer list?
- Do you have exclusive rights for a region and is your marketing restricted to that region?
- What Intellectual Property (IP) assets such as trade marks patents and trade secrets do you have the right to use?
You may also want to consider the following points as well for buying a business (some of which also apply to buying a franchise).
2. Do you understand the financials?
- Have you analysed the business’ financial records? Specifically:
- Staffing costs.
- What are the fixed and variable costs?
- Does the business have any outstanding debts?
- What refunds and warranties still exist for the business?
- Are there debts owing on assets that are registered on the Personal Property Securities Register?
- What’s the business’ current value?
- Is the business viable based on the above figures?
3. Future prospects?
- Why are the current business owners selling?
- What are its future prospects?
- What is the business’ customer base and is this likely to remain a customer base? eg. some customers may be attached or loyal to the current owners, the business may have been reliant on a recent trend or nearby business activity, which is likely to end in the near future?
- Who are the current suppliers and influencers and are they likely to continue their support?
- What’s the reputation or history of the business?
4. Do you know your obligations, rights and agreement details?
- Are you happy with the current business structure? What would be involved in changing it?
- Do you understand the Purchase Agreement and have you got legal advice on it?
- What taxes may apply to the purchase such as GST, Capital Gains Tax and stamp duty.
- Are there any supplier, lease or other agreements in place that a new owner would need to honour?
- Are you inheriting employees and do you understand your employee obligations and their entitlements?
- If you are buying the business with a business partner, do you have a partnership agreement in place?
- Is inventory, equipment, software and IT hardware, and fixtures included in the sale?
- Are customer lists and customer relationship management (CRM) systems included?
5. Are there any IP assets?
- When you buy a business you may also be buying its Intellectual Property (IP) assets such as trade marks patents and trade secrets – you need to check first.
The above checklist is a brief guide only for buying a business or franchise in Australia. It doesn’t constitute advice. You should consult a qualified business adviser, accountant or solicitor for advice before deciding whether to buy a business or franchise. You should also check your local obligations, regulations and legislation in your state, territory and country.