Buy an existing business or franchise

Starting a business from scratch might be challenging. Franchising or buying an existing business can simplify the initial planning process.


Know the difference between franchising and buying an existing business

Before deciding which one of these options suits your needs, you must know the basics of franchising and buying an existing business. The difference between franchising and buying an existing business is the level of control you will have over your business.

Franchising gives you more external guidance but less control over your business

A franchise is a business model where a business owner (“franchisor”) sells the rights of his business, business logo, name and model to an independent entrepreneur (“franchisee”). Restaurants, hotels and service businesses are commonly franchised.

Two common forms of franchising are:

Product/name in franchising
The franchisor owns the rights to the business’ name and/or trademark and sells his rights to the franchisee. This type of franchising system usually focuses on supply chain management. Normally, the franchisor manufactures and supplies products to the franchisee, which he, in turn, must sell.

Franchising based on a commercial structure
The franchisor and the franchisee have an ongoing relationship. This type of franchise usually focuses on full-spectrum business management. Generally, the franchisor offers services, such as site selection, training, product supply, marketing plan and event fundraising.

You, as the franchisee, get the right to use the brand name, logo and products when buying a franchise. You get the benefit of brand recognition, promotion and marketing. On the other hand, you will have to comply with the brand rules concerning the management of your business.

Buying an existing business gives you more control but less guidance
When you buy an existing business, you get full ownership. The main advantage is obtaining an existing plan that includes factors, such as an already established customer base, defined operational expenses and fully trained capable employees.

Regardless of the type of business, you can always buy or sell it.

When buying an existing business, you usually get full control over its direction. However, without a vision, infrastructure or external guidance, you will face many challenges about the best way to manage your business.

Get ready to buy a franchise or existing business

Once you have chosen to either franchise or to buy a business, it is crucial to do in-depth research. At this stage, you may want to seek professional help. Consider hiring a lawyer and an accountant. Both professionals may assist you in preparing and evaluating important documents, such as:

  • Letter of intent
  • Confidentiality agreement
  • Contracts and leases
  • Financial statements
  • Tax returns
  • Sales agreement
  • Purchase price adjustment
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