You’re ready to expand your franchise operation by purchasing another location. That’s exciting, and it presents opportunities for you. Acquiring another store also exposes you to a variety of risks. That doesn’t mean you should automatically change your mind. What it does mean is that you want to be sure you’re fully aware of the potential risks, have performed thorough due diligence, and taken steps to protect yourself and your business. Most of all, don’t make these five mistakes that may make your acquisition more frustrating than fruitful.
1. Doing it alone. You’ve been a successful franchisee, so you’re clearly a pretty good businessperson. Buying another location is just a simple transaction, right? Maybe it is … and maybe it isn’t. There may be risks or problems that aren’t readily apparent to you. That’s why it pays to involve your attorney and your accountant in the transaction, Make sure they review all contracts, purchase agreements, and other relevant information. Listen carefully to questions they raise or areas they think you should explore. Paying for their expertise before you sign an agreement will be a small investment that could keep you from making a bigger, much more expensive mistake.
2. Low-balling the deal. It’s human nature to want your acquisition to succeed, and that might change your impression of the facts and figures. You may concentrate only on the acquisition cost and forget about additional investments that may be needed to add the new location to your business. Or there may be fees associated with the transaction. That can mean unpleasant surprises that will hurt your cash position. Make sure you have a complete, comprehensive summary of all costs and fees before you decide whether to proceed.
3. Minimal due diligence. It looks like the deal of the century! The location is terrific and the price is even better! Oh, but there’s that upcoming project to widen the road that will take out ten feet of your parking lot. Or maybe it’s that factory a half-mile away that belches noxious fumes, so nobody wants to come by when there’s a west wind. Or the current owner may have “forgotten” to pay half a dozen vendors, who won’t be eager to do business with you until their accounts have been settled. You can never perform too much due diligence. If the seller tells you the sky is blue, don’t take his or her word for it. Go outside and verify for yourself.
4. Buying too soon. Some franchisees are fortunate enough to attain success quickly, so they jump at the chance to expand their business and double their success by buying another store. That’s not always the best idea. There may be many factors behind the success you’ve enjoyed, and it may not be so easy to duplicate. It’s better to wait a while until you’ve been through some ups and downs. The good times reward owners financially, but the tough times reward them with knowledge and insight. More experience will boost your chances for success with an additional location.
5. Focusing on money alone. Yes, buying another franchise store will probably increase your income. More income is always better, right? Ask yourself why you went into business for yourself in the first place. Money was a factor, but it probably wasn’t the only one. Maybe you wanted more control over your destiny. Maybe you were hoping to provide a higher level of service and quality to the community. Or maybe you just wanted to set your own hours. Buying another business may bring you more money, but will it interfere with your real goals? If you have to work extra hours, will you have time to enjoy the fruits of your labor? Be honest with yourself about your goals, and then ask if acquiring another location will truly serve them.