WE’RE GOING TO TALK ABOUT WHY IT’S MUCH BETTER TO BUY AN EXISTING BUSINESS THAN TO START A NEW ONE.
THE REASONS I’M GOING TO EXPLAIN HAVE EVEN MORE WEIGHT if the buyer is: a foreign national, has no experience in the American market, doesn’t communicate fluently in English (very important), has never worked in the industry of the business they’re interested in or is going to apply for a visa through the acquisition of the business.
1) Statistically in the US, 9 out of 10 new businesses close in the first year.
2) When it comes to franchises, the utmost caution is required in order not to lose money, time, and the investor’s visa.
Here are some considerations to make:
a. Although franchises offer constant support and expertise in implementation, they do not guarantee success or profits. Most are based on inflated figures that are only achieved after years of establishing a successful business. In other words, in most cases, the figures presented are unrealistic in the short term (2-3 years), or else difficult to achieve. Unless what you are selling is a franchise unit that has already been established for at least 2-3 years and has provable financials, the risk is too big.
b. A possible exception is if the franchise is renowned, widely known, and has a strong track record of success. But in this case, the investment is usually quite high, and most foreign nationals who come to the US looking for a business don’t have the necessary capital.
Franchises end up being a “passive partner” for the franchisee, who has nothing to gain and little to lose. The franchisee is always 100% responsible for the costs and results and ends up having to share their profit with the franchisor (royalties, marketing costs, technology, among others). In addition, the franchisee has little power to make changes to the business that might suit them.
As anyone can open a franchise here, you should be wary of franchises without a recognized name and a long track record of success. Many business owners decide to franchise their brand/business based on a history of relative and limited success. It is recommended that the franchise/brand has been in business for at least 5 years, with at least 3-5 units and that the financials of all units have been positive and within the “projection” in their presentation, for at least 2 years in a row. Extreme care must be taken when analyzing these financials and they must be monitored by professionals in the field, as financials can be easily manipulated.
Franchisees need to have at least 1 year’s reserves to survive and not depend on the business for their livelihood, as it can take 2 or more years for the business to start making money. This is especially true in the food industry and more heavily regulated sectors, where licenses can take more than a year to come through. During this period, the business owner is paying, in addition to their personal expenses, the rent for the establishment and other fixed expenses without having any income from the business.
For those who are applying for investor visas through the acquisition of a business, the petition may be denied if the US Immigration Service officer determines that the applicant will not have full control of the operation, as is the case with most franchises. It is also possible for the petition to be denied or given a shorter period of validity if the officer sees the business as too risky.
And folks, the excuse that the franchisor provides training and support is not exclusive to franchises. The owner of any existing business contractually must provide training for the new owner and support continuity agreements can also be negotiated.
3) The third reason, or advantage, of acquiring an existing business is that when you acquire an established business, you already profit in some fronts. For example:
The current owner will have to provide all the training and support to the new owner, and that will be part of the negotiation/offer, thus guaranteeing the full assistance needed for the new owner to continue the business as it is currently operating.
The time it takes to recover the money invested is quicker because the new owner starts earning the day they buy the business, as it is already up and running.
If the business has been running for at least two years, and has a provable net benefit, the risk for the new owner is minimized, and it’s up to them to keep the business profitable.
Many immigration lawyers agree that visa approval for an existing, operating business is much higher than for start-ups (companies and franchises starting from scratch).
I’M VALQUIRIA PIDGEON, A BUSINESS CONSULTANT WITH FLORIDA 360 REALTY, WHO HAS BEEN HELPING FOREIGN ENTREPRENEURS GET ESTABLISHED IN FLORIDA FOR OVER 10 YEARS.
FLORIDA 360 INVESTMENTS & REALTY, LLC
Miami – Fort Lauderdale – Palm Beach – Orlando
Tel: +1 (954) 449-2529
Tel: +1 (954) 325-2625+1 (atención en Español, Português y WhatsApp)
E-mail: [email protected]