Buying an independent business as a franchisee: consent, rebranding and funding
Buying an independent business as a franchisee? Check your agreement, get the franchisor's consent in writing and plan the rebrand before you arrange finance.
Reading time4 min read
CategoryBusiness guides
Written byThe bizbritain team
Buying an independent business as a franchisee can be a quick way to grow your territory. Before you agree a price, check what your franchise agreement allows. Ask the franchisor for consent in writing, and plan how the business will join the brand. The finance is usually arranged against the combined business.
It is already happening in some sectors. In estate agency, The Property Franchise Group's news page lists several recent purchases of local independent agencies by its franchise owners.
This guide is for a franchisee who already trades well and has spotted a business nearby that they could buy. It covers the agreement, the franchisor, the rebrand and the money.
Section 01
What is in your franchise agreement about buying another business?
Your franchise agreement is the first thing to read. Agreements vary by brand, so read your own rather than relying on what another franchisee did.
Territory
Check whether the business sits inside your territory. A business just over the boundary may be in another franchisee's area.
Competing businesses
Many agreements stop you running a competing business outside the brand. Buying one without consent could put you in breach.
Fees
Check whether your ongoing franchise fee would apply to the turnover you buy, and from what date. That changes what the business is worth to you.
Approval
Find the clause on new outlets or acquisitions. It should say who has to approve the deal and what they need to see.
If anything is unclear, ask a franchise solicitor before you make an offer. It is cheaper than finding a problem after you exchange.
Section 02
What the franchisor will want to see
Talk to the franchisor early, before the seller expects an answer. A franchisor that hears about a deal late may say no, or ask for changes you cannot make in time.
Most franchisors will want to understand three things:
Your track record: how your current business is performing.
The target: what it brings, such as customers, staff or premises.
Your plan: how you will run both without the first one slipping.
Get any consent in writing. A lender may ask to see it before the money is released.
Myth 01
“If the franchisor backs the deal, the lender will too”
A franchisor's support helps. It is not a promise of finance.
The lender makes its own assessment of you, the target's accounts and the price. A strong brand helps the case, but the numbers still have to work.
Section 03
Folding the acquired business into the brand
Your franchisor will usually expect the business you buy to trade under the brand. That has a cost, and it belongs in your budget from the start.
Plan for new signage, new systems and training for the staff who come with the business. Customer contracts may need to move across to your company. Some customers may leave when the name changes, so keep your forecast cautious for the first few months.
Key staff matter most. If the owner or a senior person is the reason customers stay, agree how long they will stay on after the sale.
Section 04
How is buying an independent business as a franchisee funded?
Usually your existing company borrows the money and buys the target, or its business and assets. The lender looks at the combined business after the deal.
That works in your favour. Your current trading shows the lender what you can manage. The lender will still want the target's recent accounts, the price, your own contribution and any money the seller agrees to leave in the deal.
Include the rebrand and the first months of running costs in what you borrow, not just the price. Our guide to funding a bolt-on acquisition explains how a lender judges two businesses together.
When you have a target in mind, talk to us about franchise finance for an acquisition. A broker can look at the deal across a wider range of lenders. On advisory deals we take no commission from lenders, and you pay us nothing unless a lender issues an agreement in principle.
This guide is general information, not financial advice. Applications are subject to status, affordability and lender criteria.
Got a question the guide didn’t answer? Talk to an advisor.
Starting your first franchise, buying an established franchise or adding another location? If you’ve read the guide, our advisors can help you understand the funding options and prepare your next step.