Buying an Existing Franchise Business

by Eric Stites

Dear FBR,

I am about to purchase a sandwhich shop near a 22,000+ student campus that is a Franchise store. We will be changing the menu into a100% organic menu and this includes our newly added smoothies, milkshakes, ice tea, and frozen coffee all of which are organic. My question given the recession (if we are really in one), what is your opinion on this idea outside of the scientifcal and business facts needed to give an even more accurate opinion? The store has been open for about 8 years and is currently open.

Thanks, Torrey

Dear Torrey - Thanks for your email. Wow... where do I start? Here are a couple of initial thoughts...

First off... Yes, we are REALLY in a recession. Some industry experts have estimated that over 10,000 restaurants will close this year alone (ouch!) – and that's just in the restaurant sector! That said, other industry sectors and businesses have been less affected than others. Some sandwich shops and other lower price-point food concepts have actually benefited from the recession, as consumers look for more economical places for dining out. Different parts of the country are feeling the impact of the recession in different ways. Your local area may be less affected.

I'm also a little confused about what exactly you are purchasing? Are you just purchasing the business assets of the current sandwich franchise, or are you buying the whole business and planning to continue operating under the current franchise brand name? This is critically important because if you are going to continue to operate under the franchise brand name, you will need to be approved by the franchise company for the transfer of sale, you will need to sign a long-term franchise agreement (which includes paying royalties and other fees), and you will not be able to change the menu or business operations without seeking the franchise company's approval.

Based on your plans, I'm assuming that you are just purchasing the business assets and you will be changing the name of the business. My first question is why is the current owner selling? Just because they have been in business for 8 years doesn't mean the store ever turned a profit. How much do you know about the financials of the current shop? Also, since you will be changing the menu and product offering completely, it's hard to say how that will impact your new business. It could be great and your customers may love the new concept and products. Although, maybe they will simply want their "plain old, non-organic sandwiches" back and go elsewhere for their meals. It's hard to know without more detail.

As I am sure that you are aware, operating on or near a college campus has it's pros in cons. A younger customer base is much trendier – especially when it comes to food. Often when a new food concept opens, it will be very popular for a year or so, and then customers will move on to the next new and exciting concept. You will need to adjust business hours and services to meet the demands of students – staying open later than traditional businesses and offering in-dorm delivery. It's also important to have a plan for holiday breaks and summer vacation. Will you simply close the business down or cater to local residences that remain? If your employees are students, will you lose them over breaks, etc.?

I commend you for taking the entrepreneurial leap into your new business. You must be very excited! If you want to discuss further details or if you have other questions, please give me a call or shoot me an email.

Best of success!!

Eric Stites
Franchise Business Review
Direct 207.439.1621