Starting a New Business Chain or Franchise
Starting a new business chain or Franchise can be very exciting and rewarding. I have had the experience of financing, owning, and selling both a business chain and a franchise. The ownership of both were enjoyable. Since I had owned the business chain first, I had grown accustomed to being able to make decisions more freely. As a chain owner, you are allowed to use the name, likeness and intellectual property of the branded business, and are still allowed to customize it to your individual needs. For example, if it were a clothing store in Alaska during the winter; you would be able to sell winter clothes without permission and not be forced to have the same products as the California store.
You are allowed to be creative in terms of making decisions, and changes that would impact your business for better or for worse. Whatever you would like to introduce or remove from your business, as the chain owner you would be within your right to do.
While franchising, I learned quickly that while it was my business; I was not in complete control of its operations. I needed to have approval before introducing anything new that could be in conflict with other locations. The Franchise wants to have all of the locations as close to identical as possible. The purpose behind this concept is when you pay a franchise fee, marketing and advertising dollars are included. They do general marketing for all locations, so consistency is important. Franchises typically have worked very hard on their model for what each franchises location should be.
With the chain, the initial purchase included a licensing fee that enabled me to use the name and likeness without any additional funding, and I was solely responsible for any marketing or advertising.
The purchase of the chain was relatively the same as the franchise purchase. I was able to finance both of them. I purchased the chain through the previous owner. He acted as the bank to provide the financing after our attorney’a reviewed and approved our contract. I placed a significant amount of money down into an escrow account and paid monthly installments directly to him.
The franchise investment was slightly different. The entire process was facilitated by the franchise. Since I was able to purchase an existing franchise, I had most of my interactions with the previous owner In the franchise office. The franchise offered 3rd party financing such as private lenders and SBA loans. I was able to complete the purchase without the need of 3rd party financing. The franchise simply acted as an intermediary between the previous owner and myself. When purchasing a franchise, often times you’re buying into a territory and have the ability to purchase more than one location.
Selling the chain was no different than how one would sell a house. There are companies that specialize in business sales. You would retain one of them to facilitate the sale, you can offer financing or have the buyer bring their own funds and the same goes for the franchise. I was able to sell the franchise back to the company at a significant loss because I defaulted on the original agreement, I didn’t receive a profit. However, I was able to sell them all of the equipment and exit the lease without any penalties.
In business, most thing are negotiable. But the process that I experienced with the Franchise as they were secretly filing for bankruptcy is the reason I will always finance large business purchases in the future
. There is a lot to be said about using other people’s money. I would had preferred to have defaulted on a loan than to had put a significant amount up front and loose it.
That’s why entering into a business contract is the most important thing to do. You always want to create an exit strategy in ensure that you can exit the business as need be with minimal damages.