Like anything in business, your goal is to buy low and sell high. But there are literally thousands of people who have foolishly paid top dollar for business coaching franchises they now regret owning. This represents a huge opportunity for you. If you’re interested in a franchise system, all you need to do is find a coach who wants out and buy their business coaching franchise license for pennies on the dollar, or less. You’ll actually be doing them a big favor by relieving them of their monthly royalty payments.
As soon as you receive the Franchise Disclosure Document in your due diligence process, start with the list of franchisees who are currently involved in litigation. They will be the most motivated sellers. Begin calling every single franchisee in the list and leave a message if you don’t get an answer.
Here’s a script to get them calling you back:
“Hi, my name is _____ and I’m currently exploring the franchise opportunity with _____. I’m interested in the possibility of paying cash up-front for your franchise license and relieving you of your monthly royalty payments immediately. Please, call me back ASAP at _______ because I’m moving quickly on this. Thanks!”
When they call you back, don’t elaborate. Just tell the franchisee that you want to buy their license. In many cases, the franchisee will basically GIVE it to you — as long as you’re willing to assume the liabilities they’re trying to get out of.
If they won’t, walk away and find another franchisee. There is NO compelling reason for you to pay much for the license, because the business has no assets. Otherwise, it wouldn’t be up for sale! If there are any client relationships, DON’T pay for them, because they probably won’t survive the transfer of ownership from the existing coach to you, trust me.
When you share this tactic with your sales rep, be prepared for a little hand-wringing and hullabaloo. Ultimately, though, it will blow over, because it’s actually in the franchisor’s best interest for you to buy up used licenses, too!
Why the Franchisor Benefits from You Buying a Business Coaching License from a Franchisee
Every time a franchisee fails, the franchisor has a couple options: they can resell it or just de-activate the license.
Re-selling is always preferable because of a pesky little requirement by the FTC that franchisors hate. The FTC requires all failed franchisees to be reported in the FDD to protect you. The FTC wants you to see how many franchisees are really failing!
BUT – how it’s reported is the key. If the franchisor can sell the failed franchise license for even $1, they can show it on the FDD as a “sold/transferred” license. This makes it impossible for you to know the condition of the sale.
The franchisor wants you to believe that these franchisees made a fortune and decided to sell their businesses for big bucks and ride off into the sunset — as I did. But this is a VERY rare accomplishment in the industry. So showing the license as “sold/transferred” is usually a way of concealing failure from unsuspecting consumers.
Showing the [business coaching] license as “sold/transferred” is usually a way of concealing failure from unsuspecting consumers.
Of course, even when you get a franchisee to practically give you his license, the franchisor will still
try to make you pay for training, usually $10,000 to $25,000. They might also try to make you pay
a “transfer fee” — which really just amounts to another line of business for franchisors. (In fact, the
larger franchisors have people in their legal departments who focus on transferring licenses and, in
some cases, get paid bonuses for how much they collect in “transfer fees.” Amazing!)
But don’t give in so easily. Everything is negotiable in business. You can negotiate the training and
transfer fees just like anything else. Do you want to see the franchisor become suddenly very willing
to negotiate? Tell him that you WILL be buying a franchise license. It’s just a matter of who you buy
it from. Tell him the names of the other franchisors you’re talking to. Make him accept your offer.
If there’s one thing I hope this chapter has driven home for you, it’s YOU ARE IN CONTROL.
There are so many opportunities available that you NEVER have to pay full price for a franchise —
unless, of course, you enjoy giving your money away. 🙂
For more due diligience strategies as you consider purchasing a business coaching franchise license, check out our FREE ebook, The Business Coaching Franchise Buyer’s Guide.