Are you torn between buying an existing independent business and investing in a franchise concept startup? By opting for a franchise resale, you can avoid choosing between the two and gain the advantages of both of these paths to business ownership.
In the franchising world, the term resale refers to the sale/transfer of an existing unit or territory that a franchise company has already sold. Here are some details about franchise resales that can help you decide if investing in one is an opportunity you’d like to explore further.
The Best of Both Business Investment Options
There are distinct benefits to opening a new franchise location and to purchasing a standalone going concern. With a franchise resale, you have an opportunity to start off with all of the benefits of both of these types of business ventures, which can include:
- An established revenue stream
- An existing local customer base
- A location with leasehold improvements, inventory, supplies, and staff in place
- A verifiable business history that can make it easier to obtain financing
- Built-in brand awareness
- Proven operating standards and systems
- Ongoing support from an experienced franchisor
- An instant peer-to-peer relationship with other franchisees
- Helpful training and operational materials
- Assistance with regional and/or national marketing
- Economy of scale savings thanks to the franchisor’s purchasing power
- A defined territory that can help limit competition
Important Factors to Consider
While franchise resales provide all the benefits of buying an established enterprise and opening a new franchise location, it’s essential to remember that investing in an existing franchise means you’ll also have to work through most of the steps involved in both types of business acquisition. Here are some key issues you should plan to tackle if you decide to purchase a franchise resale:
- Determining why the franchise is available. There are a number of reasons why an existing franchise might change hands. The current franchisee may have decided to retire or relocate, may want to concentrate on other business interests, or may be following through on a planned exit strategy. It might also be due to funding or management issues that are having a negative impact on the bottom line or because the franchisee has decided that the business concept isn’t a good fit.
- Evaluating financials and asking price. When you buy any existing business, you need to thoroughly evaluate its financial history. You should take the prospectus the seller provides and any other details you’ve gleaned to a professional accountant to learn if the asking price represents a reasonable valuation and get advice on whether the unit is a viable and worthwhile investment.
- Performing your due diligence. When you’re buying a franchise resale, you’ll also need to investigate the franchise company. You should review the franchise disclosure document and the agreement in place between the franchisor and franchisee and ask to speak to other current franchisees. Before making an offer, it’s wise to have everything reviewed by an experienced franchise attorney.
- Obtaining franchisor approval. When you buy a resale franchise, you not only have to agree on a sale price and complete the purchase process with the existing franchisee, but you also need to be approved by the franchise company just like any new franchisee and pay any applicable franchise transfer fees.
Get the Answers You Need
Many resources are at our disposal which can assist you throughout the due diligence process. This includes access to 3rd party funding options, franchise lawyers, franchise earnings claims, and industry resources.