Looking into the Mind and Heart of a Business Buyer

Looking into the Mind and Heart of a Business BuyerWe often think about how to package products or services for sale to potential customers, but we sometimes fail to use that process for packaging our business for sale.

To help with that we’ve put together some categories and questions you can put to a potential buyer in a first meeting to find out if this person is a good fit for you and to potentially spur them on to action.

Timing

The buyer is sitting in front of you because he/she is financially qualified (because we made sure of that already) and they are ready to buy. But go deeper:

  • Why is this the right time for you to buy? This will reveal their personal and professional motives and why they have decided to act now rather than last year or one year from now.
  • If you don’t take action now, what are the consequences? This gives a tone of urgency to the conversation, and can reveal whether such urgency exists in the buyer’s world.

Personality

What is the buyer like? Is he/she an introvert or extrovert? Ask them:

  • What is something that really matters to you? Observe the way the buyer speaks about and engages with this topic/interest/activity. Think about how it may relate to your business.

Social Influences

Who helps support decisions in the buyer’s world? Think about asking:

  • How does your family feel about this? While extended family’s support is helpful, it’s the direct family’s support that is crucial. And the veto of a spouse effectively kills a deal.
  • How do your friends feel about it? Here you might discover that friends have been encouraging this move for years. Is this a pressure-oriented decision or is it something that the buyer has finally embraced?

Purpose

Perhaps most importantly, we need to find out the buyer’s why. Don’t fail to ask:

  • What is it that the business will give you? For those in jobs, this could be the autonomy they’ve always wanted, or the ability to finally tether their income to how hard they work. For those already tried and true in business, it’ll be the thrill of a new challenge. Whatever it is, we need to know what the buyer is getting out of this big decision.
  • How would this business match your skills and desires? This is a bit of a “closing” question, as we are pivoting from the big picture of the previous question to “how can we help.” But this matters for sellers too. A strong connection here can lead to a light-switch moment for the buyer and an impulse to move forward. This is a great opportunity for the sellers to apply their selling skills honed over the years to this specific potential buyer.
  • What are your hopes and dreams outside of this business? This ties us back to the personality question about what makes they might be passionate about, but it’s also a “post sale” question. We are assuming that they have already potentially bought the business, and it’s empowering them to chase after these hopes and dreams. You can help color in those spaces as needed.

Yes, business sales are about dollars and cents, but don’t kid yourself, it’s one of the most emotional things many people experience. Don’t battle those emotions as a seller. Harness them to your benefit and, ultimately, to help identify a serious buyer.

Need more questions like these? We’ve got you covered. Give us a call.

The Market Discovers Boring Businesses

The Market Discovers Boring BusinessesIf you’ve ever paid any attention to the small business community on social media platforms like X, “boring businesses” are as popular as ever. The “bad” part of a boring business is that it’s not glamorous. The fun part? It reliably returns cash flow, day after day, month after month, year after year.

The Category

In case you’re still struggling to visualize these types of businesses, they include:

  • Self-storage
  • Laundromats
  • Vending machines
  • ATMs
  • Car washes
  • Bookkeeping/accounting
  • Home services

Other telltale signs of boring businesses include:

  • A fax number
  • No website
  • No internet presence

Codie Sanchez, one of the prophets of this category, even has a list of 130 of them you can peruse. She’s even started a holding company that strictly acquires and scales home service businesses.

The Opportunity

Some of the opportunities lie in the telltale signs we just mentioned. For example, a fax number indicates a business that has been around a long time and has established customers. But it also means that there’s probably been a lack of voluntary tech upgrades. Those upgrades would include an updated website, branding, and the right type of digital marketing and SEO.

All of those upgrades necessarily reach a broader audience, instantly adding new low-hanging revenue for mostly one-time investments.

Because a lot of boring businesses tend to be mom-and-pop (less so self storage since it became a PE darling) the possibility of a roll-up is also present, magnifying the financial effects of someone cutting inefficiencies/poor practices out of a mom-and-pop-style business.

For example, you buy a laundromat which is decently kept up, but perhaps you add branding, vending machines, wifi, etc. which brings in more customers. That means you can then apply those same changes to the next laundromat you buy, making it part of your new “chain.” This adds even more value for a future exit.

Not Complicated

Perhaps what is most attractive about boring businesses, both for rookie entrepreneurs and seasoned business owners, is that these businesses are not overly complicated, nor do they require a significant training/certification period. They involve a discrete list of tasks that need to be completed by you or your team each day, week, month, and year. Some businesses, like ATMs, for example, can run pretty much on auto-pilot. They already have built-in customers. They can sometimes offer lower overhead, which is a great help to a first-time business owner.

Guess who also loves boring businesses? Banks. These boring businesses are the types of companies who have already been part of transactions at the bank or who bank there now.

As you build out new customer acquisition funnels through digital marketing, etc., you will learn how to add these new processes to what you’ve already been doing.

Does a boring business sound exciting to you? Let’s find you one! Give us a call.

Do Your Legal Due Diligence

Due DiligenceWhile due diligence is a term that encompasses all the things you need to examine more closely when buying a business (or anything, for that matter), legal due diligence is a subset of that diligence that you need to pay attention to. Each of the categories we will mention in this article can be its own rabbit hole and it can sometimes be tempting to leave rabbit holes in peace, but for peace of mind when buying a business, you need to explore each one to make sure no surprises pop out after a sale.

Leases

While the one lease that everyone thinks about in a business sale is the one for the office space, there are also vehicle, equipment, and furniture leases to consider.

In all these cases you are going to want to examine the procedures for transferring the lease to another person. Most often, in an office space lease, the lessor is going to want to extend the lease for a certain additional period beyond the current term. That length is negotiable, but never expect the transfer of a real estate lease to be a mere formality. We’ve watched location-dependent deals blow up because the buyer and seller didn’t take this part of legal due diligence seriously.

Contracts

Many businesses don’t have employment contracts but they may have licenses that they issue or obtain that function as a contract.

If these contracts are not necessary for the new owner to assume, he/she may choose to use a different mechanism to continue the agreements that the contracts currently assume.

Lawsuits

With lawsuits buyers should be looking at three “Ps”: past, pending, and potential, i.e. has there been any litigation in the past, is any pending, and is there the potential for litigation in the future? 

IP

More and more important in a digital age, intellectual property needs to be secured. Many times, business owners have never been properly advised to get copyrights or trademarks, and in the legal due diligence process these are either obtained by the outgoing owner and bundled into the sale or by the incoming owner and noted as part of the transaction.

Remember that IP can also include systems that are used internally or are licensed to others.

Taxes and Liens

If there is real estate in the deal, are there any outstanding property taxes due? What about liens on the property or business?

Environmental Issues

This is rarer in business transactions, but when it is relevant it is often overlooked. Is there any specialized care or maintenance that needs to conform to environmental standards set by federal, state, or municipal authorities? If so, has it been done regularly?

Good Standing

Is the business in good standing and is the counterparty you are dealing with the only one necessary to authorize the sale of the business?

Warranties and Representations

This is the “fine print” that people often overlook, but the overarching scrutiny here should be on what the seller is stating about the condition of the business, particularly any potential downsides.

Feeling panicky or discouraged looking at all the aspects of legal due diligence? Don’t be! We are here to help you every step of the way. Give us a call.

2023 Changes to SBA 7(a) Loans

2023 Changes to SBA 7(a) LoansWhile no one is usually excited to hear about changes to a government program (more fine print to read?) we here at Apex are pleased to see some of the changes coming in August 2023 to SBA programs, particularly the 7(a) loan program which we see so much of. We don’t have time to get into every rule change (see your banker for those) but we wanted to highlight a few that are definite game changes.

What is the 7(a) Loan Program?

The 7(a) is the SBA’s most common loan program and is a good option when real estate is part of a business purchase, but can also be used short and long-term working capital or for refinancing current business debt. It has special requirements to obtain the loan and requirements to stay compliant during the life of the loan.

Changes

Percentage of Business Purchase

The headline-making change here is that the loan no longer has to be used for a 100% change of ownership. Starting August 1, 2023, these loans can now be used to buy a portion of a business or even a portion of an owner’s interest in the business.

What this means:

  • Key employees who had equity in the business no longer have to exit as owners
  • License holders, particularly those who hold licenses which are difficult for new owners to obtain, no longer have to exit as owners, but can stay onboard, in a way, to ease the business transaction
  • Buyers can buy part of a business to learn, then buy more as their comfort, expertise, and cash flow allows

Related to this, the old rules stated that an existing owner could only stay on in a transitional role for a maximum of 12 months. Under the new rules, the seller could stay on as an owner, officer, director, or even a key employee.

Liquidity Restriction Lifted

Oddly, those with substantial personal liquidity were formerly restricted from access to these loans. This restriction will now be lifted.

Minimum Amount Removed

Loans needed to be for businesses valued at $250,000 and above. This restriction has been removed.

Equity

The SBA changed the definition of what constitutes equity in relation to seller debt. Formerly 10% of the business needed to be financed by both buyer and seller in a traditional formulation of “five and five” in which a seller note was half of that 10% amount and the buyer put up the remainder. But the new rules indicate a 2.5/7.5 split between borrower and seller, but some have interpreted that several ways:

  • Could the part of the business that a seller keeps count towards the down payment?
  • With a seller note as the majority contribution of the 10% rule, could buyers find a way to get an SBA loan without any money down?

Alas, with governmental bodies, there are rules, and then there are interpretations of the rules. When a rule isn’t clear, you’ll see a cooling effect on those who would be interested in taking advantage of an opportunity in case they face an adverse ruling in the future.

However, where no interpretation is necessary is the new rule that if you have the same NAICS, ownership, or geographic area, this will be considered expansion and no equity infusion will be required.

As we mentioned above, your banker is your first stop for questions about these changes. Your next stop? Apex. Give us a call.

What Size Business Do You Need?

What Size Business Do You Need?A fair number of would-be buyers come to us still in the midst of their careers, so they have been used to a certain income level for some time. They’ll tell us, “I need to make X,” and it’s almost never lower than their current salary. While we understand that perspective, let’s put that within the frame of a business transaction.

Look at the Numbers

There are some key numbers we need to consider when trying to calculate the X referred to above:

  • Asking Price
  • Cash Flow
  • Debt Service

How do these numbers work together? Let’s use round numbers to make the math simple. Let’s say a business is asking $550,000 (and because they are one of our clients, they’ve gotten a professional valuation so that number is bankable) against annual cash flow of $200,000. Most SBA deals (and many of our deals involve SBA loans) require some kind of seller financing, which can bring down the total upfront amount. In this case, let’s say the seller is willing to finance 5%, or $27,500.

The bank is generally going to want to see at least 10% from the buyer, so with the $27,500 that the seller is willing to finance, the bank will want to see $52,250 from the buyer. That gets us to $470,250 that needs to be financed.

Let’s assume a 10% interest rate, which gets us $74,568 in annual debt service to the bank and the seller financing we’ll assume to be around $6,000 for a 5 year payback.

So if we subtract the debt service ($80,568) from the cash flow ($200,000), we get $119,432.

If our client’s X was $120,000, we’re there!(A buyer also needs to consider ongoing  working capital requirements with their cash needs but most banks will supply a line of credit to handle 30-60 days of working capital.)

But what if our client’s X was $150,000? There are two ways to go.

The first is delayed gratification. Save your pennies for a few more years and come back with a larger down payment so we can get closer to your X.

The second is belt-tightening. Reduce your expenses now and see how you do for 3-6 months on a new budget that’s closer to the X that’s appropriate for the down payment you have in hand. Sometimes going forward means taking a couple steps to the side and even back. 

Keep in mind too that our fictional scenario doesn’t account for individual tax situations. While owning a business is definitely more favorable than having a job in the US tax system, your accountant should be consulted when making these calculations. With all the advantages business owners have you may not be taxed as heavily, meaning you’ll get to take home more net pay than you might have compared to the exact same gross amount in a regular salaried job.

We hope this exercise helps you see that buying a business, like buying many other assets, involves more than one sticker price. Dive deeper to find out what size business you need to pay your bills while you build it and grow it.

Not sure if the market these days is tracking along with our fictional numbers above? Give us a call and find out what’s out there…before it’s gone!

What Brokers Don’t Do

What Brokers Don't DoWhile we do take pride in providing our customers with peace of mind in a business transaction, there are limits to what we can do. In this article we’ll cover a few of those limits (and what resources you can lean on instead).

We’re Not Attorneys

While all of us have looked at more contracts than almost anyone who is not an attorney, we still don’t function as an attorney when we are your broker. We’re not going to bill you by the hour, and we’re always happy to look at some wording you might be puzzling over, but we have a solid list of attorneys who have experience in dealing with business transactions, not someone who’s your friend’s brother’s cousin who does property law.

While your attorney is someone you pay, like us, to advise you on the deal, beware of those who try to take control of the deal. We’ve seen more business sales flame out for this reason than any other. If you don’t manage your attorney, you will get managed instead.

It’s Not Our Decision

Outside of buying a home, this is often the single largest financial transaction our clients go through, and they often look to us for advice. We can’t tell you how often we’ve heard, “Which deal would you take” or “What would you do”? We always try to reframe this by reminding the client that it doesn’t matter what we would do, it matters what they want. We can only provide context and experience, but ultimately, accepting a deal is never going to be our decision.

A classic example of this is on price. If there’s a gap between what the buyer is offering and what the seller wants, and if we’ve already done the work on valuation, we will accept if the seller wants to wait for more money. That means the buying window may likely lengthen, but if the amount is significant enough, and the seller is not in a rush, this may make a lot of sense. In any case, we’re never going to tell a client to take an offer (or to refuse one). Again, our goal is always to advise and be part of the dream team that brings all this together.

We Don’t Focus on Specific Buyers

Our job is to facilitate meetings with different buyers (who may come from a range of backgrounds) but we are representing you, not them. They may have engaged a broker to help them purchase a business, and that broker may even be one of our colleagues, but our job is not to help our colleague close the deal his customer wants, but to make sure our client engages with the buyer he/she is most aligned with, and we’re always going to bring our clients back to the original goals and values they enunciated at their first meetings with us to offer perspective on what to do in a given situation.

So there are three things we don’t do. If you want a reminder of the many things we do, do, check out our Day in the Life article.

Meeting the Employees After a Sale

Meeting the Employees After a SaleWhile confidentiality is the name of the game before a sale, openness and transparency are the watchwords once a sale is finalized. In this article we’re going to speak about what buyers need to accomplish in their first meeting with team members.

Meet in Person

Do not call employees over the weekend to “prepare” them for a Monday meeting. This will start a game of telephone that may end up with no one showing up on Monday. Make sure that you meet in person so that these team members can get to know you in person. 

Bring Food

Food makes so many events in our lives better and more memorable. A change of business ownership is certainly an event worthy of food. Find out from the seller what some popular food items have been in the past or what company traditions are regarding food. 

Explain the Continuity

Sometimes sellers arrange for the sale to be a complete exit with no transition, but that’s pretty rare. Usually the old owner is around the business in one form or another for at least 90 days. 

This meeting offers an opportunity for a feel-good “same team” moment in which the former owner mentions:

  • his/her ongoing availability (when is the last day of transition, if relevant)
  • positive traits of the new owner (underline that this was just as much the seller’s choice as it was the buyer’s)
  • excitement about what’s to come (the seller should coordinate with the owner and mention what one or two positive changes that might be coming down the pike)

The former owner also needs to signal a changing of the guard and that decisions now need to be run by the new owner. This will take some getting used to!

This is also a chance for the new owner to return the favor. Talk about:

  • what was attractive about the business in the first place
  • what led to pursuing a transaction
  • any interesting discoveries during the diligence and closing process

The new owners shouldn’t be afraid to lavish praise on the company and the team. There will be plenty of time to get back to work, but this is a moment to pause and celebrate. Not all businesses are worthy of a sale, and the compliment paid to the whole team in an acquisition should be driven home.

Share Enthusiasm

One of the positive changes that a new owner can offer is a pay raise. While this may not always be possible, even a very small raise would still symbolize a positive change and make sure employees realize from the start that their livelihoods are not in danger. This could also be tied together with letting everyone know that there will be a retention bonus for all who stay up to a certain date. Those bonuses can be settled in individual private meetings.

Ask for Feedback

Also prepare employees for those private meetings by letting them know you’re going to be asking them for frank feedback. What should the company stop doing? What should it start doing? How do employees see their future with the company in the short and medium term?

Apart from things related to the company, employees should be prepared to share their own personal and professional goals. This will give both the new owner and the employee a chance to see whether there’s any synergy between things that an employee is pursuing personally that might find an outlet professionally.

For example, if someone is working on being a better public speaker, could that same employee be given more opportunities to speak publicly for the company in given situations? If an employee is passionate about a particular local charity, is there a chance for that charity to offer a volunteering event for the company in general? Just because something hasn’t been done before shouldn’t rule out possibilities in the “new” company.

One of the most important aspects of any successful business is the quality of its employees. Since they probably know nothing about the new owner, this is the perfect opportunity to make a great impression on every level. Don’t ruin your first chance to make a great impression.

We’ve actually been present at a few of these meetings and can help you make yours great. Ask us how.

Looking for Businesses on BizBuySell

Looking for Businesses on BizBuySellA fair number of clients come to us because they first did a search on BizBuySell. It’s the Amazon of business buying and selling. It hosts tens of thousands of active listings at any given time and if you do a basic search in the Kansas City area, as you browse through the listings you might even run across an Apex ad!

Our goal in this article is not to turn you into a BizBuySell client (because face it, we’re better), but to show you how those listings can help hone your own criteria as you shop for a business.

Geography

When you get to the site you’ll notice the very first prompt is geographical. Once you put in your state or city you’ll see the next field defaults to “all industries.” If you want to get a broad swath of choices, opt for a state instead of just one city. 

Price

As you look at your search results, you’ll see different filter options. The next logical filter to use is price range. No point looking at businesses that aren’t a good fit for your financial position.

Once you’ve put in your price range, you’re going to have an even narrower range of results, but still high-level enough for us to have a lot of options.

Asking Price vs Cash Flow

The most worthwhile listings are going to list cash flow right underneath the asking price. This allows potential buyers to immediately assess whether this proposition makes sense and is worth pursuing.

For example let’s say you see an asking price of $300,000 against a cash flow of $150,000. That’s a 2X multiple, which is standard for Main Street service businesses. That might be worth looking more deeply at.

Or you might see something listed for $500,000 and instead of cash flow it says “asset sale.” This is a different proposition from a standard business purchase and is going to require more work. That doesn’t mean it’s not potentially a good deal, it just means it should go in a different bucket among what you’re considering.

You don’t have all the time in the world to look at every listing, so you should first consider the ones that list cash flow. The businesses are usually pretty confidentially listed (though you’ll occasionally see a name, picture, and website of the business!) so there would need to be a good reason not to list cash flow. These might take extra investigation.

You can probably also skip past businesses which have high multiples but low cash flows. For example, if a business is doing $10M in revenue with $2M in cash flow, it wouldn’t be unreasonable to see a price of $8M or higher.

But if your business is doing $300,000 in revenue, with $30,000 in cash flow, and you see a price of $200,000, you’re probably looking at a pure asset sale (equipment and inventory). This may be a more distressed business that you might want to skip.

Industry or Business Type

Now it may seem funny that this is the last category we consider, but you have to realize it’s a lot easier to find a business that you might be a good fit for once you’ve taken a look at it versus insisting on only a few types of businesses that you are willing to look at. You really never know what might be a good fit.

On the other hand, be willing to be opinionated about what you want to do, because, after all, this is going to be a big part of your life going forward. If you don’t see yourself in an event rental or pest control business, cross those off your list. 

What we recommend is keeping an open mind. The game of entrepreneurship is the same across many industries and business types. If entrepreneurship is what you’re after, there are many businesses that can suit your purposes. 

Just as many might have found a career through what seems to be a combination of chance or providence rather than a set plan, so too the right business for you might not have been the one that you imagined, but the one that was a perfect fit, once you’d looked at the numbers, the opportunity, and had a chance to do your due diligence.

BizBuySell has a tremendous service, but they don’t have access to a lot of our private listings. If you want those, give us a call and we’ll be happy to share them with you.

7 Qualities of a Qualified Buyer

7 Qualities of a Qualified BuyerWe’ve discussed questions buyers need to ask themselves before buying a business and we’ve also talked about three things that can help buyers make a great start after they buy a business. Today we’re going to talk about the qualities of a qualified buyer. The more of these you have, the higher your chances of being successful in business ownership.

An Entrepreneurial Spirit

You don’t have to have owned a business before or even run lemonade stands when you were a kid. Entrepreneurial spirit is about questioning the status quo (could this be better?), seeking growth and understanding (not just continuing education that you have to do, but general enrichment that you choose to do), and taking on challenges and opportunities (always being open to doing something new).

An entrepreneurial spirit, even if you’ve never been an “entrepreneur,” is key to business ownership.

A Management Background

You don’t need to have managed teams of hundreds or dozens of individuals. Even managing a handful or one person will open you up to the challenges of communicating with a different person, taking into account his/her personality, working style, and level of motivation.

Those who “don’t like managing people” won’t do well in business ownership.

A Willingness to Lead

Not every leader seeks out leadership. Cincinnatus famously was working on his small farm when he was appointed dictator to help rescue Rome. He defeated the enemy in a single day, celebrated a triumph in Rome, then went home to farming. He didn’t seek leadership, but when it came to him, he embraced it (and saved Rome).

Many consider themselves “reluctant” leaders. That’s okay; business ownership will give you the opportunity to put that reluctance aside and embrace the personal growth that comes from exercising your leadership muscles.

An Ability to Look at a Broad Range of Activities

A day/month/quarter/year of a business owner has regular cycles of things that will require knowledge and expertise you may have to develop.

Perhaps you’ve never looked forensically at books and budgets before. Or you’ve never iterated through a marketing and PR campaign for a business. Or examined SaaS products to see which has the best value for your business. Or run payroll. Or managed vendors.

You’ll have to do at least some of these activities as a business owner, and that means in some cases you’ll be starting from scratch. Bring humility and a student’s attitude of “always be learning” and you’ll be fine.

Support from Your People

Sometimes you’ll have opposition to business ownership from some people in your life, and that’s healthy to an extent. You need people pushing back so you can better articulate your reasons for buying a business. But if you have opposition from a spouse, for example, that’s a red flag.

Get signoff for your major life decision of buying a business from the people who are major in your life.

Comfort with Making Decisions with Incomplete Information

While some people can make decisions before they’re even asked, and others need all of the research possible and then years to ponder that info, business owners are often in between those extremes. They will be asked to make decisions and will be given some time to make them, but they often will not have all the information they would like, sometimes because it’s not available (“Will this marketing campaign work?”).

Business owners already have, or are open to acquiring, the ability to make decisions when needed, knowing that sometimes the wrong decision will be made, and out of that should come a lesson, not regret.

Knowledge of Industry

Of all the ones we’ve listed above, this is the least necessary, but it would be foolish for us to say that industry knowledge isn’t a major advantage, if you have it. The only caution we have here goes back to the idea of continuing ed and a student’s mind. Don’t ever get complacent about “what you know” and be open to the fact that there are things you don’t, even in an industry you may have worked in for decades.

If you like what you read here and want to listen to a podcast discussion on qualified buyers, you can find that here. If you have several of these qualities, we’ve got businesses you should take a look at. Give us a call.

7 Qualities of the Best Franchises

FranchisesFranchising continues to grow year-on-year and there seem to be ever more choices and opportunities in more and more segmented markets.  How do you spot the right opportunity?  We’ve seen our fair share of franchises over the years so we’ve put together a list of the qualities we consistently see in the best of them.  

Strong Brand Presence

The strongest brands have a great name, visibility, and buzz.

A great name instantly indicates what you do.  If you, as a stranger to a brand, respond with, “What does that do/mean?” to a brand name, that’s a reaction plenty of other people will have, and as Tom Brady says, “if you’re explaining, you’re losing.”  

The best names are worthless if they aren’t backed up by visibility: where is an example of the franchise running?  Is it creating a buzz that people are talking about?  If it’s been established for a while, do people still speak with pleasure and excitement when talking about the brand?

Proven & Profitable Local Marketing

The key here is “proven and profitable.”  You can ask for examples of current marketing materials to see how well done they are.  You can also call and ask franchisees how the marketing works and what sort of return they see on those local marketing investments.

Operating Manual & Training

While you’re unlikely to be given a manual or be allowed to sit in franchisee training until you’ve committed, this is yet another area in which you can simply ask franchisees:

  • How thorough was the training?
  • Did you feel prepared to run your business afterwards?
  • How is the ongoing training?
  • How detailed is the manual?
  • What online resources do you have to complement the training and manual?

“Use a proven system” is one of the major bragging points of franchises and the backbone of any system is the training.

Friendly Corporate Culture & Communication

This is one of the shadow indications of what franchise life will be like.  How do corporate staff interact with you on the phone?  What’s the feeling like at Discovery Day?  What’s the CEO like?  What’s the overall spirit at the corporate level?  Remember that this will directly affect your experience (and profitability) as a franchisee.

As with many of these qualities, ask the franchisees for what their experience has been like.

Franchise Association

Many franchisees don’t realize that it’s important to have a forum for their voices to be heard that stands apart from official company channels.  A franchise association that is recognized and approved of by the franchisor is an important quality of the best franchises.

Such associations offer a space to discuss brand and system matters while minimizing the distracting rabbit holes of individual disputes, which should always be between franchisor and franchisee.

Strong Standards

A simple question to get insight into the standards of a franchisor is, “Have you ever turned anyone down, and if so, why?”  A “Yes” answer isn’t required here, but it is reassuring to get a sense that standards beyond net worth and financial capacity matter to the brand, because every franchisee in the system, in a way, can affect you.  You don’t need to demand the tougher-than-Harvard-admission acceptance rates of a Chick-Fil-A, but strong standards do matter.

Territorial Exclusivity

This is a principle universally accepted by franchisors but uneven in its application to franchisees.  Don’t rule out wheeling and dealing with current franchisees who have locations that are more geographically desirable to you.  Just because a territory is “closed” doesn’t mean that deals can’t be cut.

Are you considering buying a franchise or a business run with the reliability of a franchise?  We might have some great fits for your personality and finances.  Give us a call.