Many clients have come to Lusthaus Law P.C. because they want to create their own professional and financial destinies by buying an existing independent business or franchise. Some were inspired by a great product and others researched economic and market reports and believe they can turn a profit.
These are fine initial reasons to want to purchase a business or franchise, but it is critical that you make an honest assessment of yourself and the business you want to operate before making an offer. To help you make an informed decision, we will review some information about franchises and independently-operated businesses.
Assume there are two donut shops just a few blocks from your home – one a franchise and one independently operated. Both feature freshly-made donuts and pastries, strong coffee, and are staffed by friendly employees who take pride in great food, client service and cleanliness.
Choice A: Buying a Franchise Unit
The nearby donut franchise location is also known as a “single unit franchise” – one of many that is part of a recognizable brand. It is owned by one person who, in this case, does not own any other units.
Your decision to purchase this existing unit is a common form of franchise acquisition. This unit may be similar to others sharing the same franchise name, but it is separately owned. Depending on the proximity, this unit may even be in competition with nearby locations bearing the same logo.
We have previously discussed many of the steps needed to purchase an existing franchise. For example, while you will own the unit you must understand the terms of the franchise agreement that you will be required to execute. In addition to the financial commitments, the franchisor will expect you to maintain the reputation, aesthetic and processes that make it so popular and instantly recognizable.
Choice B: Buying an Independently-Operated Business
An independently-operated business is exactly what it sounds like – a unique company based in one location. You and other local consumers may prefer this donut shop over the franchise because of its special taste and offerings. Further, this could be a family-owned business with roots in the community.
Your strategy to keep it profitable largely depends upon its established local presence and the ability to provide custom, special moments to the next generation of consumers and neighbors.
Buying an existing business (whether franchised or independently operated), may include purchasing hard assets such as equipment, inventory and leases, as well as intellectual property and trademarks.
Benefits of Ownership
Below are some additional features and benefits of buying either type of business:
- Name, brand and product recognition, including signage.
- Established relationships with vendors.
- Support from the franchisor and franchise system with regard to training and maintenance.
- The benefits of local and national advertising.
- A presumably-developed location with dependable clientele.
- Uniqueness. While you may not be the only shop in town, you will stand out by not operating a franchise – this includes everything from the physical location to the taste of the food.
- More freedom to take risks and change the products and services offered.
- Ability to establish and build a local brand.
- Creative control of overall advertising and promotions.
- You make all strategic decisions about vendors, expansion and modifications.
It is also worth noting that with either selection, you will likely be responsible for retaining or hiring employees and possibly honoring existing employment contracts. These are just some of the details included when making such a critical purchase. One may have better name recognition, but the other might offer greater creative opportunities. Which will better help you achieve your own goals and suit your work ethic?
The purchase of an existing franchise or independently-operated business is a complex process. The agreements between the buyer and seller should be reviewed carefully by an attorney who can advise the buyer on the best way to protect its interests.
You do not need to work through this process alone. Lusthaus Law has a long history of advising clients on the purchase of an existing business, whether it is a franchise or will be independently operated. Contact us for a consultation.