le·gal·ese /lēgə’lēz/noun
1. The formal and technical language of legal documents that is often hard to understand. 2. Need-to-know legal advice from Jason Power
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Tips for Buying a Franchise Resale
urchasing an existing franchised business, instead of starting one from the ground up, can be a great way to walk into an existing income stream and avoid the high costs of build-outs and training. But purchasing an existing franchise requires a slightly different analysis than purchasing a new one, and there are specific points that need to be addressed. Here are a few key considerations: READ THE FRANCHISE DISCLOSURE DOCUMENT (FDD) AND FRANCHISE AGREEMENT. When you buy a franchise resale, you will be required to sign a franchise agreement. You will be as obligated to your franchise agreement, just as the previous owner was to his. Take the time to read and understand your rights, duties, and obligations as a franchisee, because you will be subject to these terms for the next 10 (or more) years. REVIEW THE ASSET PURCHASE AGREEMENT. When you and the seller agree on the terms of the sale, the seller’s attorney will draft an asset purchase agreement. This agreement—some30
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times simply called a buy-sell agreement—spells out the terms of the sale: when the purchase price is due, the closing date, what assets are included and excluded from the sale, and what liabilities you are assuming, like debts of the seller. Review your asset purchase agreement with an attorney to ensure you are properly protected. MAKE SURE THE FRANCHISOR APPROVES OF THE TRANSFER. Every franchise agreement gives the franchisor the authority to approve of a transfer and of you as the buyer. If the franchisor does not consent to the transfer—or to you as the new owner—then the entire transaction could be dead in the water. HAVE A VALUATION OF THE BUSINESS PERFORMED. When you purchase any business, you should know and understand the actual value of the business. Many times this is different than the asking price and can provide room for negotiations. Value can include a variety of things such as the business goodwill, the current inventory, and equipment, etc. The best way to determine the value of a business is to hire a company that focuses on business valuation services.
