6 Reasons Why Investing in a Franchise Makes a Great M&A Strategy

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If you are looking for financial freedom without being an industry disruptor, investing in a franchise might make a great M&A strategy for you. Franchises present a convenient avenue for discovering businesses to acquire in an unconventional way.

Here's six reasons why buying a business through franchise investing makes sense:

 

#1: More Boomers Who are Franchise Owners = More People Likely to Sell Their Business

Just like buying any business, investing in ones with owners who are approaching retirement age is a smart way to start.

Whether the owners are genuinely ready to retire or seeking a simplified lifestyle with increased family time, this demographic is the most likely for sourcing a ready-to-sell business. This trend holds true when exploring potential franchises for purchase as well.

 

#2: Ongoing Support and Training

Enjoy what you're good at and leave the rest to corporate.

Unlike independent small businesses, franchises offer a comprehensive support system from the franchisor. From initial training to ongoing guidance, franchisees benefit from the expertise and resources provided by the established corporate brand. The franchisor's support can include marketing assistance, operational guidance, product development, talent acquisition, software, and employee training programs. This invaluable support network ensures that you are never alone in your business journey and can rely on the franchisor's experience to navigate challenges and maximize your chances of success.

 

#3: Instant Access to a Closed Network and Loads of Data

Another reason franchise investing makes a great small business acquisition strategy is because of the database you have access to. Franchise location's customer traffic, sales numbers, inventory, and other performance metrics are all at your fingertips. Additionally, the franchise network provides insider insights on potential sales and resources for sellers. However, be mindful of varying local franchise reputations and the need to balance brand compliance with entrepreneurial independence.

 

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#4: Recognizable Brand and Customer Base

Building a brand from the ground up is a challenging task that requires substantial time, effort, and resources. However, investing in a franchise grants you immediate access to a recognizable brand with an established customer base. Consumers already trust and recognize the franchise's products or services, giving you a head start in the competitive market. This brand recognition can significantly reduce the time and resources required to establish your business and attract customers, enabling you to hit the ground running.

 

#5: Diverse Financing Options

One of the biggest hurdles faced when buying a business is securing financing. But luckily, there are options.

You can partner with a bank and go the commercial loan route. You'll need to show proof that the business is established, healthy, and profitable — all factors more easily proven with franchise investing. Additionally, franchises are good at securing a SBA loan because lenders know that there are certain internal measures set-up for the franchisee from the brand's corporate office.

You can work with the previous owner on seller financing. Instead of using putting down a huge upfront payment and putting up assets as collateral, you set-up a repayment plan with the seller using the revenue of the acquired business. The most common ways to go about this are:

  • Set amounts every month — decide in advance how much you'll pay the previous owner back and for how long.
  • Amounts based on business performance — you'll determine a specific percentage of the month's profit to send to the previous owner.

While there's more ambiguity and negotiations for this financing option, it is popular for those looking to avoid market interest rate sway and large down payments.

You can work alone or with a team of investors with a search fund acquisition. HOWEVER, this is really only a viable avenue if you are acquiring MULTIPLE franchise locations. And even then, it is not as commonly used as the two prior financing options.

 

#6: Proven Business Model

Investing in a franchise allows you to to bypass the unpredictable startup phase and fast-track your journey to success (a.k.a. financial freedom)

One of the most compelling reasons to invest in a franchise is the existence of a tried-and-tested business model. Franchises are built upon systems and processes that have been refined and perfected over time, allowing franchisees to step into a pre-existing framework of success. By capitalizing on an established brand's reputation and operational expertise, you can sidestep the uncertainties and trial-and-error typically associated with starting a business from scratch.

 

Investing in a franchise makes a great M&A strategy for those looking to fast-track to financial freedom without being an industry disruptor. If you're looking for more information on how to begin your acquisition journey with franchise investing, check out our Guide to Small Business Acquisition Loans and get in touch with one of our acquisition experts.

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