There has been an increase in demand for quality franchises which has been fuelled by a number of factors, including the downturn in the mining sector, leaving many middle rank executives out of work, and Gen Y buyers wanting to be their own boss.
Franchises are an attractive investment for a business owner with little skill or knowledge of the particular industry. Buying a quality franchise has the benefits of:
• Initial training and support
• Ongoing training and support
• Loyal customer base
• Proven track record
• Established brands / household names
• Immediate market share
• Some financial institutions have generous lending criteria with eligible franchisees
• Quality franchises are favourable with landlords
Our own experience suggests that business owners are looking for a change in career and the security that comes with a well established name. Low interest rates are also making it more attractive to invest. We’ve had three clients instruct us to perform due diligence on franchises in the last three months.
It has been reported that franchise revenues are expected to increase by 2.5% over the next 5 years, with online sales gaining prominence among franchised businesses. Things are looking up for the industry and there has never been a better time to consider buying a franchise business.
However, it’s not all bells and whistles. Business owners must be diligent when buying a franchise. They are like any other business. You must perform your due diligence, including a review of the:
• franchise agreement
• lease agreement
• trading figures
• operational support
• buying power
Franchisors tend to overvalue their businesses, using multipliers of EBIT of between 3 and 3.5. Each business must be valued on its own merits to determine the true value.
This is where we can help. If you’re considering purchasing a business, let Optima Partners assist you to make the right decision.