Advantages of Buying an Existing Business

Earnings method

Considers the future income potential of the business to establish its value.

Hidden market

Consists of low-profile companies that might be for sale but are not advertised as such.

Balance sheet method

Establishes the value of a company by computing the book value of its net worth, or owner's equity.

FTC's philosophy regarding the UFDD

Focuses on providing information to prospective franchisees and helping them make wise decisions.

Franchisor financial assistance

Generally involves assisting in finding financing and occasionally providing direct assistance in a specific area.

Territorial protection

Gives existing franchisees the right to exclusive distribution of brand name goods or services within a particular geographic area.

Advantages to buying an existing business

Include greater access to venture capital, opportunity to participate in a national advertising campaign, established inventory and trade credit, and easy implementation of innovations and changes from past policies.

Multiple-unit franchise

Involves a franchisee having the right to create a semi-independent organization in a particular territory to recruit, sell, and support other franchisees.

Accounts receivable analysis

Involves assessing the value of accounts receivable based on the probability of collection.

Cobranding franchising

Involves establishing a franchise of one brand inside a franchise of another brand.

Due diligence process

Involves investigating the details of a company for sale to determine its strengths, weaknesses, opportunities, and threats.

Evaluating the assets of an existing business

Involves judging inventory on the basis of its market value, not its book value.

Franchising

Involves providing the franchisee with a complete business system, with an established name, the building layout and design, accounting systems, and other elements.

Top international market for U.S. franchisors

Is Canada.

Conversion franchising

Is a franchise trend in which owners of independent businesses become franchisees to gain the advantage of name recognition.

Letter of intent

Is a nonbinding document used in the process of acquiring a business.

Centralized buying power

Is a significant advantage for a franchisee due to the economies of scale the franchise offers.

Franchise failure rate

Is lower than the average rate for new businesses.

Goodwill

Is the difference between an established, successful business and one that has yet to prove itself.

Franchise honesty suspicion

Should arise if a franchisor claims that the franchise contract is a standard agreement and that there is no need to read it or have an attorney look it over.