Entrepreneurs today are much more likely to look for a turn-key business opportunity, one where they can start making money right away. Of course, with any turn-key opportunity, such as an existing franchise, you trade the high-risk/high-reward start-up for a safer and slightly less exciting investment. But not all existing businesses are a safe bet. Before you start searching the internet for existing franchises for sale, learn how to steer clear of the wrong business opportunities.

The Two Most Common Existing Franchises for Sale

This may sound elementary, but there are basically two types of existing franchises; those that are making money (and priced accordingly) and those that are barely making it (and available for a bargain). No matter which model you choose to pursue, you must first determine whether the franchise's future performance will be positive or negative under your ownership.

If you have done your "due diligence" and think you can be successful, the best way to value the business is by applying a simple calculation to the projected net cash flow. Net cash flow is the income that is left over from your revenue after all revenue-producing business expenses are deducted. When you start looking at existing franchises for sale, you should have access to their historical financial statements, which will help you arrive at this number.

Once you have a good idea of the net cash flow from the business, the price should be about two to five times this number. When business trends point to positive growth, for example, the multiple could be a little higher. But it could also be lower when industry projections are flat or negative.

When you find under performing existing franchises for sale, the current owner may have a lot of good reasons for poor revenue results, and they may try to convince you that a change in ownership will solve these problems. However, if you remain unconvinced it may be better to back away from the resale, unless you are able to get a great deal.

Summary

There are two types of existing franchise for sale: those that are making real profit and those that are barely making any profit. Which one you will buy will depend on you but first you must determine the franchise's future performance using the projected net cash flow method. When the net cash flow has been determined you can estimate the price. If the industry projection is good, it could two to five times the net cash flow. If flat or negative, this will be lower. You should be fully convinced that what you will be buying will be a good deal.