Franchise business advice

My eldest daughter is 23 and is a year away from completing her degree. She works part time at a local tack shop. The owners have expressed an interest in retiring and having her buy them out. It’s part of a franchise. By all appearances it’s successful and has a solid customer base. Since she’s a student with no money or credit I assume the current owners would have to hold a mortgage and she would have to make payments. 

This is all way out of my comfort zone so I’ve come to the hive for advice. Where does she start? How does she determine a fair price? The owners have become friends with her so she can have an open and frank discussion with them but she’s also still a kid with no business experience. Her education isn’t business related so no help there either. My feeling is, sometimes opportunity knocks and you should at least think about answering.

The price is right for the advice you receive if there’s an active group in your area—

https://www.score.org

Could be a great opportunity, but she will need to take a long hard look at their books to see the value. Also, pay close attention to the franchise. Many are not really good deals for the "owners".

It will be a lot more than 40 hrs a week. But right after college and before kids is an excellent time to work hard if that's what she wants.

Karacticus said:

The price is right for the advice you receive if there’s an active group in your area—

https://www.score.org

Excellent suggestion. Also, look for state sponsored stuff (loans, coaching, incentives, etc) for women and minority owned businesses. Talk to an accountant who is familiar. May be lots of tax incentives.

I used to know a guy who owned a "Ricky's" restaurant franchise, not sure if those exist in the USA.

He mentioned that the franchise paraphenalia is what really hurts you even though the franchise name helps you.

The example he gave was that plain napkins cost (just tossing out numbers here)  about a penny each. "Rickys" napkins cost 10c a piece and you have to use the "Ricky's" napkins as part of the franchise contract.

Not sure that sort of thing applies in your situation or not but it's things like that to look out for.

I was in the Canadian franchising world 20 years ago from the franchisor side.  One of the very first things your daughter should do is determine what the current owners' Franchise Agreement (the lengthy document that governs virtually every aspect of the relationship between the parent company [franchisor] and this particular store [franchisee]) has to say about changing the ownership of the store.  Clearly, the franchisor has a significant interest in who represents it in the marketplace, but what "significant" actually means can vary widely from case to case.  They might have structured the Franchise Agreement so that they can evaluate a prospective purchaser in depth just as if she was a new franchisee, or they might not care who buys the store so long as the royalties keep coming in.

Another thing to look out for is whether this store is "grandfathered" in any way (payment amounts, store features, stock they have to carry, discounts, etc.) and, if so, whether those arrangements change in the event of a change of ownership.  That could have a large impact on the economics of the store going forward.

Don't hesitate to PM me if I can help further.  I still have a couple of connections that might be useful.

To chime into some of what Stealth wrote above, I will share my personal experience...

About 6 years back, a friend and I considered buying a very successful Master Franchise.  As a "Master" we would have had responsibility for 2 states and our general role would b to find and sign new people to open locations.  The previous Masters had been in this role for 10 years and gone from Zero locations to 41 locations.  

What took too long to learn was that if we took over from the current Masters our new agreement with the National Office was not going to be the same as the outgoing Masters.  If we became the owners we were going to be bound to some significant monthly advertising expenses and store investment requirements that the current Masters were not being held to.

In short, the term that the current Masters were living within (and profiting significantly from) were not going to be the terms that we would be living in and our ability to generate the same profit would not exist.  

It took us nearly a year to get to the bottom of the whole thing and that was that the current Masters had only put the business up for sale by the urging of The National Office, however, the National Office could not force the current Masters to actually fairly price the business.  The net result was that the business was not "really" for sale.  

So...  There will be changes to the agreement with National if you buy the place.  The current owner does not know what these changes are.  You will have to speak with (and negotiate with) National to get an understanding of what these changes may be.