If so, sign up for the free Sales Source newsletter. There are four reasons acquiring a company rather than growing your current company organically:. Expand into new markets.
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You acquire a company whose products are complementary to your current products, in the expectation that the sum of the parts will be greater than the whole. Obtain advanced technology. You acquire a company that has technology you need for your product set but which would be difficult or time-consuming for you to develop yourself in-house. Get hard-to-find personnel.
You acquire a company that employs a set of highly-skilled employees rather than going through the time-consuming process of recruiting them individually. Increase market share. You acquire a company that is directly competitive to your own thereby securing their customer base without the bother of fighting a series of competitive battles. A responsible executive. A single person should be responsible for the acquisition and act as team leader.
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In most cases, it's the CEO of the firm doing the acquiring. An investment banker. Even small acquisitions are financially complicated, so you'll want input from somebody who's worked these issues in the past. An experienced lawyer. Acquisitions entail complicated rules for what you can say or do; counsel can help ensure you don't accidentally screw up.
An HR expert. If you're acquiring people along with the company, you'll probably need somebody to help work inevitable people issues.
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An IT expert. You'll need to meld whatever hardware and software the acquired firm is using into your own system. A public relations person. From the start, you'll want to position the acquisition positively to your customers and investors. Adopt a sceptical approach to investigation; query and question everything about the business. Be realistic about the effect of a change in ownership; there could be changes for the worse as well as the better.
Set two prices before you go into negotiation; the lower one with which you start the bidding, a higher price beyond which you will not go. Negotiation is everything. If they do not then they may not be fully in tune with your style and business philosophy. Finding a good emotional and philosophical match with your chosen franchising company is almost as important as choosing the right sort of business. Given sympathetic and genuinely relevant support we can achieve almost anything - be sure that your franchise partner will be able to provide it.
Successful businesses - not just franchises - are always based on a sound and healthy business and profit model. Most franchises tend to have this, or they can't operate, but check the extent and sustainability of the financial model. The better the profit model then generally the easier it is to start up, run and maintain a successful business. New innovative products and services with protected technology and new growing markets make ideal franchise businesses.
This is because demand exceeds supply, which enables price levels to be maintained, and the protected technology limits the effect of competition. Businesses with strong brand names and reputations also tend to have stronger financial models. This is because customers are prepared to pay a higher price, and will more often say yes, to receive a trusted product or service. Mature products and services tend to have less strong financial models. This is because time has enabled competition to develop - alternative products, services, technologies and suppliers.
Maybe routes to market are no longer appropriate for franchise business operators. Would you take a local door-to-door book or CD franchise given the dominance of the huge online distribution businesses? Not likely. If there is a better and more cost effective route to market than through a franchise business it is likely that the financial and profit model of the franchise in question is under pressure.
Seek out franchises with modern technology, innovative protected products and services, a strong brand and reputation, with growing markets, where the route to market favours the franchising business model.
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These opportunities will almost certainly be the ones which offer the strongest and best profitability. If you buy a franchise that lacks integrity, then with all the best will in the world, you will be pushing water uphill. Look for and buy a franchise which has high integrity at the centre of its products, services and business ethos, and you are half way to running a high integrity franchise business - all that remains is for you to ensure that your own input and activity are high integrity too.
What is the level of investment and what do you get for it - is it good value? Or is it all smoke and mirrors? How long will it take you to recover your investment - in other words what is the payback period - how quickly will the franchise realistically and reliably get into profit?
This is a crucial indicator, and one which you must understand and be assured that it is acceptable and achievable before you buy any franchise. What are the running costs of the franchise? Get a clear idea of what these costs are. Be able to see and understand them over a year, broken down month to month. What working capital will you need?
What borrowing or loan arrangements are required, and can you afford the repayments, given the working capital requirements of the new business, and the rate of expected business and profit growth? What alternative borrowing or loan arrangements are available - look around - negotiate hard. If you do not ask you will not get.
No back manager will offer you their best possible rate until or unless they feel they have to. Have an alternative - play one lender against the other. This applies also to when you come to buy the franchise itself - sometimes there is room for negotiation. Again, if you don't ask you won't get. Buying a franchise can become like buying a house - if you get your heart too set on one single option then you have exactly that - just one option; and no room to negotiate.
If you find two options you immediately increase your power in the discussions, and you will feel more liberated in your decision-making too. Understanding the relative financials is an important aspect of comparing franchise opportunities. Work at using the key financial figures and indicators and you will quickly become accustomed to making these judgements, which in turn will make you stronger in your discussions and negotiating before buying your franchise.
The business contracts that are signed by the franchisees and franchisors represent the agreement and terms of trading between the two parties. What is written in black and white, and signed by both parties, is the agreement you have made. Nothing else matters - so take time to understand this part of the process, and question anything that you don't like.
It is no use in a subsequent dispute or misunderstanding to refer to a discussion or verbal commitment. If it ain't in writing and signed, then it ain't any use to you. If you understand the contract you will achieve far greater control over your legal advisors whose fees can escalate considerably when clients fail to understand what's going on , and also greater control over the other side and their advisors, and you will generally be able to negotiate a much more advantageous outcome.
You don't need to become a lawyer - just understand what the contract means - you'll be surprised how easy it is if you take a bit of time to learn. The following information about selecting and buying a franchise business is provided by Business Link, which is gratefully acknowledged. While the information is essentially for the UK franchising market the principles are generic, sensible, and transferable to anywhere.
The material is subject to Crown copyright. The right franchise can give you a head start. Typically, you trade under the brand name of the company offering you the franchise, giving you help and support. Successful franchises have a much lower failure rate than completely new businesses. But it isn't all plain sailing. Some franchises are better than others. And some people find that running a franchise just isn't for them. This guide will help you decide whether franchising is for you. It shows how you can find the right franchise, and highlights the key issues you need to consider.
The term franchising can describe some very different business arrangements. It is important to understand exactly what you're being offered. This is the most common form of franchising. A true business format franchise occurs when the owner of a business the franchisor grants a licence to another person or business the franchisee to use its business idea - often in a specific geographical area. The franchisee sells the franchisor's product or services, trades under the franchisor's trade mark or trade name and benefits from the franchisor's help and support.
In return, the franchisee usually pays an initial fee to the franchisor and then a percentage royalty on sales, although some franchising arrangements do not include a royalty payment. The franchisee owns the outlet it runs. Many well-known businesses offer franchises of this kind, including famous brands in sectors such as fast food, drain clearance, print and copying, cleaning chemicals, pet food deliveries, and automotive repairs.
Different types of sales relationships are also sometimes referred to as franchises. For example:. Some businesses offer 'franchises' that are really multi-level marketing. It is fair to call many of these businesses 'pyramid schemes'. Self-employed distributors sell goods on a manufacturer's behalf.
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You get commission on any sales you make, and also on sales made by other agents you recruit. However many of these multi-level marketing organizations do not represent the proper spirit of franchising: many do not give good support, many are based on poor-integrity business models, and some multi-level marketing schemes are downright dishonest and illegal.
So be warned. Buying a franchise can be a quick way to set up your own business without starting from scratch. But there are also a number of drawbacks. As with any new business venture, you need to carefully consider whether you have got the right skills and attitude to run a successful franchise. Analysing your own temperament can also help you decide which type of franchise would be right for you.
As well as offering guidance and seminars on franchising, it provides:. Franchises are advertised and written about in various national newspapers and in trade publications such as Dalton's Weekly and Franchise World. Websites such as Whichfranchise and Franinfo can be a useful source of information on franchises.
You can find other listings using a search engine and employing search terms such as franchise opportunity or franchise directory. Attending a franchise exhibition can also be a good way of finding out what's on offer. Details of some major exhibitions are available from FranInfo. Do tread carefully. Advertised franchise opportunities - particularly multi-level marketing schemes - can be untried, dishonest or even illegal.
Assess the franchise opportunity carefully and check whether the company offering the franchise is a member of the British Franchise Association, or your own country's equivalent. Ask questions and look for evidence of their claims. Ask the franchisor for a full list of past and present franchisees, not just the two most successful ones. Take advantage of other sources of information and advice. Ask your bank - many have franchising specialists. And make the most of other advisers such as Business Link, your solicitor or your accountant.
This doesn't need to be War and Peace - a basic outline is enough to tell you and your bank manager whether your preferred business franchise is a sound proposition or not. Just as you would for any other business, you need to draw up a business plan when buying a franchise. This will help you assess the prospects for the business and identify potential weaknesses. A business plan is also essential for raising finance. When calculating the likely cost of a franchise, you need to take both initial and ongoing fees into account.
You must also take into account what 'working capital' you need - this is the money you and the business need in order to run and survive before profits and cashflow are generated. This should be a relatively low administration fee.
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