Written by Efranchisesale Staff Wednesday, 02 February 2011 10:18
Entrepreneurs today are much more likely to look for a turnkey business opportunity, one where they can start making money right away. Of course, with any turnkey opportunity, such as an existing franchise, you trade the high-risk/high-reward startup for a safer and slightly less exciting investment. But not all existing businesses are a safe bet. Before you start searching the internet for existing franchises for sale, learn how to steer clear of the wrong opportunities. \
The Two Most Common Existing Franchises for Sale
This may sound elementary, but there are basically two types of existing franchises; those that are making money (and priced accordingly) and those that are barely making it (and available for a bargain). No matter which model you choose to pursue, you must first determine whether the franchise’s future performance will be positive or negative under your ownership.
If you have done your “due diligence” and think you can be successful, the best way to value the business is by applying a simple calculation to the projected net cash flow. Net cash flow the income that is left over from your revenue after all revenue-producing business expenses are deducted. When you start looking at existing franchises for sale, you should have access to their historical financial statements, which will help you arrive at this number.
Once you have a good idea of the net cash flow from the business, the price should be about two to five times this number. When business trends point to positive growth, for example, the multiple could be a little higher. But it could also be lower when industry projections are flat or negative.
When you find underperforming existing franchises for sale, the current owner may have a lot of good reasons for poor revenue results, and they may try to convince you that a change in ownership will solve these problems. However, if you remain unconvinced it may be better to back away from the resale, unless you are able to get a great deal.
If you are looking for existing franchises for sale, and you want to deal directly with the existing owner, check out the business opportunities at EFranchiseSale.com.