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Buying a Franchise – what they won’t tell you

Isaac Singer whose name became synonymous with the sewing machine began one of the first franchises in the United States 160 years ago. By 2007 the Census Bureau was reporting that 10.5% of the businesses with employees were franchises. This model of entrepreneurship has become increasingly popular. One reason is that it offers “easy” access into the world of business ownership.

And it appears an attractive proposition at first. Franchisors put on lavish presentations. Nervous investors find the promise of training and franchise support to be a great comfort. But there is one thing that the Franchisor won’t tell you. In many cases the start up costs of these franchises are more the resale value.

Here are some examples that I have come across in my own career.

1.A sub sandwich franchise. Start up cost $150,000. Priced at $50,000 and did not sell.
2.Restaurant franchise. Start up cost of $1M. Sold for $650,000 with a large seller held note.
3.National Restaurant franchise. Start up cost $1.5M. Sold for $670,000.
4.Massage therapy franchise. Start up Cost $450,000. Sold for $392,000.

These examples are not unique. Opening a franchise can be expensive. Franchise fees are just the beginning. There are travel, training and accommodation costs. There follows buildout expenses, furniture, fixtures, equipment, marketing costs and inventory. Staff must be interviewed and hired. The time and effort put in by the owner is another cost not typically itemized. And on day one, when you open the door – after all this expense – you start with zero customers. It can often take 1-2 years before you break even. During this time you are pouring more of your precious reserves into the business.

Compare this to the advantage of purchasing a resale franchise. The groundwork has been done for you. You walk in to a business with location, staff, equipment, inventory and customers already in place. Furthermore the Franchise Transfer Fee is typically a fraction of the original fee and can often be negotiated with the seller. You still benefit from franchise training and support. In addition you can negotiate training and support from the current owner. Hopefully if you have selected well you are making a profit from day one.

So before you invest your hard earned money I recommend you take a look at the franchise resale market. Your local friendly Business Broker will be happy to help.

Buying a Gas Station – things you should know

The first thing to know when buying a gas station is that you are unlikely to get rich selling gas. In an urban area the typical margin per gallon of gas is 6-9 cents per gallon. In many cases credit card fees will wipe out any profit on gasoline sales. This is why it is becoming more common for stations to offer split pricing, one price for cash and another for credit.

While many people assume that higher gas prices mean more profits for gas stations owners – very often the opposite is true. Higher prices generally mean lower sales volume while at the same time squeezing already tight margins.

The key to a profitable gas station is the “inside sales”. Here margins typically run as high as 35%. Groceries, beverages and tobacco sales are lucrative. Other income streams such as car wash, lotto and ATM fees are common. Increasingly gas stations are serving prepared food and gourmet coffee in an effort to boost the bottom line.

To be viable most gas stations need at least $30,000 per month in inside sales. While gas is not very profitable it is a good lure to entice people into the store. Gas stations near major Interstates can do very high volume and are sought after.

The industry has become increasingly competitive and is always sensitive to the general economic climate. On the positive side everyone needs gas and a gas station with good inside volume can be highly profitable.

While there are gas stations that sell mostly or only gas, most stations also have a convenience store attached. For the purpose of this article I am dealing with the gas station/convenience store operation.

The importance of confidentiality – when selling your business

When business owners first approach me about selling their business – often their greatest concern is Confidentiality. The worry is that employees, vendors, competitors and customers may learn that the business is for sale. I will deal with each concern separately.

Employees: Employees may become concerned about job stability. This can lead to key employees seeking work elsewhere. Employee moral can plummet causing job attendance and performance to suffer.

Vendors: Long standing vendor relationships could be damaged. Vendors may change credit terms or pricing or even terminate the business relationship.

Competitors: Competitors may use the knowledge that a business in on the market to poach customers and employees.

Customers: Customers get nervous when they learn a business is for sale. They become concerned that a new owner may not honor pricing, warranties, commitments or that customer service will decline. These concerns may cause your customers to look elsewhere.

The combined effects of all these factors can be devastating for a business. The knowledge that your business is for sale will often affect the viability of the enterprise. It can cause the value of your business to decline or may even put you out of business.

Business Brokers know how to handle the sale of a business in a confidential manner. We do not advertise the name or location of your business. Advertising is not directed to the general public but instead we target business buyers. Now days this is done through advertising on websites dedicated to business sales.

When an inquiry is received our first step is to verify the identity of the prospect. They must sign a Non Disclosure Agreement (NDA). This is a binding document which requires the prospect to keep all they learn confidential. In most cases we will also require a Personal Financial Statement (PFS) to verify that the prospect has the financial wherewithal to purchase your business. Only after these documents are received will we release limited information.

A detailed examination of business records is only permitted after a potential buyer has made an offer or submitted a Letter of Intent acceptable to the seller. This examination of records is referred to as the “due diligence period” and is worthy of a post in itself.

In summation hiring a Business Broker will help protect the confidentiality of the transaction. This is why you should only trust your Business to a qualified and trained Business Broker. In Florida the best Business Brokers belong to the Business Brokers of Florida (BBF). Ask if your business broker is a member.

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Anthony John Rigney PA

How to determine the value of goodwill

Goodwill is the value of a business above the fair market value of its tangible assets. It is an “intangible” value meaning that it cannot be directly measured. We can measure the total value of a business in a number of ways. Main street business brokers typically use a multiple of earnings approach with relies on market data to put a value on the business. In other words we are able to value a business based on what similar businesses have sold for.

We can also estimate the value of the fixed or tangible assets of the business. Assets such furniture, fixtures and equipment can be appraised at fair market value. Once we have these two values we can determine the proportion of business value which can be assigned to goodwill utilizing the following formula.

Goodwill = Total value of business – fair market value of its tangible assets.

In the event that the fair market value of the business’s tangible assets is greater than the total value of the business there is no goodwill. In this event the business will typically be sold off for the value of its assets and no more.

In summation goodwill can be thought of as the result of the synergy between various different components of the business that create a surplus value. It is the value of a business’s customer base, reputation, branding, employee relations and any proprietary technology or patents.


Buying or selling a business is a complex process. Make sure you have the right team on your side. Contact us today!