Dallas’ Leading Mergers & Acquisitions Firm
for Companies with $500,000 to $50 Million in Revenue

(214) 396-8100

Reasons to Consider Buying an Existing Franchise

You’ve decided you’re tired of corporate America or some other job that isn’t satisfying and you want to obtain the freedom that is only found in owning your own business. Many people in your shoes choose to buy a franchise. Often this is a good solution since franchises typically have a higher success rate than independent start-ups. 

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Franchises are businesses in a box.  It is being in business for yourself but not necessarily by yourself.  While statistics of the success rate of franchises are in dispute, there is no doubt that most franchises succeed over time. In fact, according to IFA Educational Foundation , more than 90 percent of owners renew their franchise agreements at the end of their contracts. This would indicate that franchise owners not only are successful but they are prosperous enough that they want to renew and continue in business. 

When looking at businesses to purchase this makes it very compelling to purchase an existing franchise.    

  • Successful Track Record: If the business is sellable it must have a successful track record. So when you combine the fact that is a franchise that has a tendency to be successful over time with the fact that you can see an established franchise’s track record you can be confident that this should continue in the future.
  • Training: All franchisors require new franchisees to be trained by them. This includes when an existing franchise is being transferred.  As a buyer you can be confident that you will clearly understand how to run the business that you are purchasing. Good franchisors provide training programs designed to bring you up to speed on the latest process techniques and marketing systems that will help you be successful in running the business. They will also have reference materials to assist you in dealing with issues or whatever comes up while you're running your business. When the franchisor is the one training you they have a proven process that works.  Sometimes business owners do not always explain the processes that they follow clearly, so this is eliminated when you buy an existing franchise.
  • Ongoing Operational Support: Unlike an independent business a franchisor has staff dedicated to providing ongoing assistance to franchisees. You can always call on experienced individuals when you hit a rough spot.
  • Purchasing Power: A quality franchise will have the connection that allows you to leverage the buying power of the entire system to negotiate prices for everything you need at significantly lower levels than you could achieve as an independent operator.
  • Brand Recognition: This is one of the main reasons that franchises succeed. When you buy an existing franchise you not only have a regionally or nationally recognized brand but you are buying an established brand and business in a specific marketplace.
  • Easier to Secure Finances: Many start-up franchises are not able to obtain financing from banks adequate enough for many business owners to complete the start-up. When you purchase an existing franchise you are more likely to be able to get the needed financing from a bank.  The reason is because the bank has the track record of success to rely on as well as their confidence that you will be able to operate the business effectively.man-and-woman-shaking-hands
  • Income From Day One: this is certainly a positive over the start-up franchise. Not only do you have a track record at this location but the day you purchase the business you will receive revenue.  As the saying goes, “revenue is king”.
  • Established Customer Base: This is important not only for established cash flow but this can be an avenue to grow the existing franchise. As in anything the previous owner may be burned out or has not promoted the business in a while.
  • Trained Employees in Place: A good franchise not only has training in place for business owners but also employees. This is helpful when purchasing an existing franchise where you are able to have employee’s that have been trained but they also have experience at this location franchise.

I think purchasing an existing franchise is genius.  Yes I said it, GENUIS!  Why?  When you purchase an existing franchise you have a proven business model with a proven track record in a specific market.  Business is not safe. When you buy and or own a business it is risky and challenging, but when you buy an existing franchise you are able to minimize the risk. You are able to have the same benefits of owning a business that you have always wanted but with lower risk. If you’re interested in buying or selling a franchise, contact Sigma for more information.

 

How to Sell a Machine Shop – Manufacturer

The machine shop and Precision machined products industry is very desired and can be a very sellable type of business.  When you are trying to evaluate the possibility of selling your business there are a number of factors to look at to determine if your business is sellable and to get a good idea of what your business is worth. Whether you own a Job Shop or a production type shop there is a market to sell this type of machine shop.

Key areas to evaluate:

Customer Concentration

A simple report that you can find in Quickbooks is “Revenue by Customer” (Here's how you can open the report).  This report shows how total revenue is distributed among your customer base. Customer concentration affects value because it has the potential to determine the success or risk of a business future and can significantly affect the closing price.

Types of Customers

Manufacturing in the US is affected by the economy.  While this is an obvious statement, the customers you may have come in different categories when it comes to HOW the economy affects their business and therefore affects your business. It is important when valuing a Machine shop to look at the industries that your clients serve: Medical, Automotive, Aerospace, Oil and Gas, maintenance products, construction, or Retail. Each one of these sectors (and many more) are effected by the economy in different ways. Business buyers are looking to buy a machine shop that is or has the potential to grow rather than shrink.

Certifications

Certifications are a good indicator of systems and processes that you have in place for your business.  It is a proven fact that businesses with well-organized processes are more valuable than those that have less structure. The International Organization for Standardization (ISO) provides a certification that is important to strategic buyers and has an impact on the impression of financial buyers. Certifications such as ISO 9000 traditionally help the value of the machine shop significantly.

Employees

Having Machinists that have earned tenure can certainly help, as well because skilled machinists are difficult to find. Employee turn-over is always an issue with shop help but companies that have low turnover are typically more desirable.

Technology

The condition of machines and the level of technology within the shop are significant influences that can affect the price of your machine shop. Short run machine shops using design and prototyping capabilities could demand a premium. Any equipment that needs to be repaired or replaced should be taken care of before attempting to sell your machine shop.

WIP and Raw Materials

Work in progress is extremely important when selling your machine shop, as are raw materials. Production costs include materials and labor used in producing goods as well as allocated overhead. Backlog, a line-item expense for repairs and maintenance, availability of qualified labor, and client industry trends are all issues a potential buyer should investigate in valuing a machine shop.

Once we have accessed the areas above we can begin looking at the financial performance of the machine shop. While only a professional business broker has the proper expertise to provide the business valuation of your machine shop, the following formulas can give you an idea of what the value of your business will be and how our business brokers determine the sales price.

 

location

Sigma Mergers & Acquisitions LLC: 18170 Dallas Parkway, Suite 203, Dallas, Texas 75287
Dallas Business Broker, Mergers & Acquisitions Dallas / Fort Worth / Texas

214-396-8100 Office
972-838-5202 Fax