Buying an existing franchise business is an exciting prospect. However, it is a complicated process. Speaking to the right professionals can help you to make the right decisions on the right terms. Seeking professional help can also help the purchase process to run as smoothly as possible. This article sets out three professionals you should speak to when buying an existing franchise.
1. A Business Broker
Business brokers facilitate sales between buyers and sellers. If you are interested in buying an existing business, a business broker will most likely represent the seller.
Business brokers can assist you by providing information about the business and communicating with the various stakeholders. While the broker ultimately represents the seller, they may be willing to share information that will help you make a good decision as the buyer.
Before making any commitments to a broker, however, you should contact the following two professionals for an independent opinion on the information they have given you.
2. An Accountant
If you are looking to purchase a franchise, you will need to speak to an accountant. Accountants with experience in the franchise industry will be able to quickly understand the business and identify any red flags. A good accountant can help you with:
- completing financial due diligence to ensure that the business is ready for purchase;
- reviewing the profit and loss statements provided by the previous owner;
- choosing a business or company structure that is beneficial from a tax perspective;
- evaluating financial projections from the franchisor;
- budgeting for the first year of business; and
- ongoing bookkeeping.
Make sure that you find a franchise accountant you can work with easily, as you will likely be in regular contact with them.
Continue reading this article below the form3. A Franchise Lawyer
Franchising is heavily regulated by complex, industry specific laws. Because of this, a generalist lawyer is unlikely to be the best fit for your new venture. You will need to find a lawyer with in depth knowledge of the franchise industry. A franchise lawyer can help with:
- reviewing the legal aspects of the deal; and
- negotiating a settlement.
A franchise lawyer can also negotiate the terms of the franchise agreement on your behalf. Often, franchisors will be willing to change terms within the contract. Having a specialist lawyer on your team increases the chances that any amendments you propose will be accepted.
If you are purchasing an existing business, you may also need advice from a lawyer with experience in the sale of businesses. Likewise, if there is a lease involved in the purchase, you will need a lawyer to review that lease.
When Should I Speak to These Professionals?
When you buy a franchise, factors like the age of the business, the number of employees and any stock involved can affect the sale. As a result, it can be difficult to determine when you should approach professionals for help. Understanding the four main stages of buying a franchise business can help you decide when to engage the three professionals listed above.
Stage 1: Offer and Acceptance
The process generally starts with you, the buyer, doing some preliminary research on the business and negotiating the key terms of the sale with the business broker or owner. Often, the seller will provide a document called a heads of agreement. This document outlines the key terms of the sale.
At this stage, you should be talking to the business broker and your lawyer. The business broker will help you understand the critical elements of the offer. Your lawyer can review the heads of agreement to ensure that it has been drafted favourably.
Stage 2: Amending the Terms of the Contract
Once both parties have agreed to the heads of agreement, the seller will provide you with a contract for sale. At this point, your lawyer will generally prepare a list of amendments to the contract and send it to the seller’s lawyer.
As well as a lawyer, this is a good time to engage an accountant to review any financial information that the seller has provided. This might include:
- balance sheets; or
- profit and loss statements.
Accountants can also conduct a business valuation. Having an up-to-date valuation may be helpful during negotiations.
Stage 3: Negotiation and Exchange
After you send your suggested amendments, negotiation typically starts. The lawyers on both sides will work together to formalise the contract. During this time, the business broker will frequently act as a central point of communication between the lawyers, the seller and the buyer.
Once negotiations are complete, you and the seller exchange contracts. Due diligence is also completed during this stage, so this is a good time to finalise matters with your accountant and confirm any promises the seller has made.
Stage 4: Settlement
Settlement is the final stage of the business sale. It involves the legal transfer of assets, accounts and other vital elements of the sale. During this time, you will be working closely with your lawyer to ensure that you meet all your obligations and that the seller meets theirs. Once settlement is complete, you will be the new owner of the franchise business.
Key Takeaways
Purchasing a franchise is a major business decision. You will need to ensure that you complete the process correctly. To do so, you should speak to:
- an experienced lawyer;
- an accountant; and
- a business broker.
You should look for accountants and lawyers who specialise in franchising and business sales. Speaking to these three professionals when you are buying a franchise can help you to start your new business in a strong position. If you need help with purchasing a franchise business, contact LegalVision’s franchise lawyers on 1300 544 755 or fill out the form on this page.
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