Sometimes, it’s better to buy an existing franchise unit than start a new one. The benefits of these “franchise resales” include:
- Bypassing many of the headaches of startup, including site selection, sourcing customers, and building name recognition in your community.
- Gaining access to an operation that’s already established, operational, and connected with a steady, loyal customer base.
- Attaining a roster of employees who already know your business.
- Accessing the business’s financials and performance data in advance of your purchase, which can help you verify a unit’s financial footing and make realistic projections about future performance.
But is this idea right for you? Read on to find out.
What are franchise resales?
Franchise resales is a transaction that occurs when the current owner of a franchise unit wants to exit the business and attempts to sell it to another party. Many of the steps to this process are similar to buying a non-franchised business, especially raising capital to cover acquisition costs and conducting due diligence, but the process is a bit more complex because of the role the franchisor plays in the transaction.
Typically, a franchisor will want prospective buyers to complete its franchise acquisition process, regardless of whether the buyer is purchasing a new franchise unit or trying to acquire one that’s already in operation. When this happens, a franchisor might require potential owners to apply to the franchise, attend its discovery day, and meet other franchise-specific requirements. The franchisor wants to ensure that a new owner meets the set of qualifications they impose for every other owner of their franchise units, so they may ask for interviews and conduct screening procedures that can add time to the traditional business acquisition process.
You can learn more about these steps in the following articles:
Why buy an existing franchise rather than a non-franchised business?
Both buying scenarios have benefits. Each option allows you to evaluate a fully operational business’s successes and merits before deciding to proceed with a purchase. Each also gives you the opportunity to access the business’s books, records, processes, and more to determine whether that business is a sound investment.
The benefit of a franchise over another form of business is this. Franchisors know how to help their unit owners succeed, and they’re usually committed to offering guidance, training, and resources that will bolster your odds of success.
Keep in mind that there are some drawbacks to buying a franchise over another form of business. One is that you’ll have less flexibility in adapting processes, selecting products or services, or experimenting with marketing approaches that may attract customers to your business. But, if you’re willing to sacrifice that flexibility to buy into a franchise model that offers support, resources, and cash flow, franchise resales might be the right choice for you.
Why would someone sell their franchise unit?
A person could sell a robust franchise unit for lots of reasons. Retirement is one of the most common, but some sell for health concerns or relocation needs instead. Some sell simply to cash in on the successes of their franchise unit.
There are plenty of other reasons an owner might sell, too. Some sell when they feel they’ve invested too much time into their business for too little return. Others try to sell units with an irredeemably poor reputation that the owner doesn’t know how to overcome. Still others sell because they lack the managerial skills or knowhow that’s necessary to help their unit succeed.
The reasons for a sale can vary widely, but each can hint at the health and viability of a franchise unit. You should consider those reasons carefully and commit to investigating any available unit thoroughly before proceeding with a purchase.
Does it cost more to buy an existing franchise than a new one?
Usually, yes. Units that perform well tend to have higher asking prices than startup franchise units in comparable areas. But while the costs of purchase are higher, the risks can be lower, especially when you have clarity about how well a business has and may continue to perform in a given location.
|While the expense may be greater, the combination of lower risk and proven cash flow may open more options for financing with favorable terms. Learn more in our article, Your Go-to Guide to Financing the Purchase of a Franchise.|
It is possible to find franchise units for sale that are priced lower than a new franchise. Distressed franchise units that need infusions of capital, better management, or site improvements often have more affordable price tags to account for the investments of time and cash that are needed to improve the business.
Should I even consider a failing unit?
Sometimes, failing units are great investments. Here’s what you should look for to make this call:
- You can determine the cause of a unit’s troubles.
- You can identify a plan for overhaul.
- You’re confident in your ability to implement new courses of action.
- You have or can raise the cash that’s necessary for improvements.
Most failing units require extensive investments of time and resources, though, so you should be sure you’re up for the task before proceeding. Our article, Is a Distressed Business a Good Opportunity?, can help you decide if it’s an option you want to explore.
But keep this in mind: Franchisors want every unit to be a success. Most will provide resources, training, and assistance to help their units profit and prosper, provided that the unit owners are willing to ask for support and implement the strategies they’re offered. Before buying a distressed franchise unit, you should speak with the franchisor to learn about turnaround support options and the resources that are available to owners of struggling franchise units.
How do I find franchise resales?
If you’re interested in owning a distressed business within a specific franchise, you can also contact the franchisor directly and ask about their franchise resales.
How can I tell whether a franchise resale opportunity is a good one?
You’ll need to conduct due diligence to evaluate any business opportunity. Work with an attorney, accountant, valuation specialist, and others to assess the business’s viability and risks and determine whether it is a good use of your time and resources.
You can learn more about the due diligence process in our guide, Considering a Franchise? Here’s How to Make a Smart Call.
Are there ways to raise the cash I’ll need to buy and improve a franchise unit?
Yes. In our article, Your Go-to Guide to Financing the Purchase of a Franchise, we provide an overview of the options you might consider.
What is the process for buying franchise resales?
We can walk you through the steps you’ll need to take to find, screen, and purchase an existing franchise unit. Log into your owner’s portal to attain a FREE step-by-step guide to this process.
I’m not sure if franchise ownership is right for me. How can I learn more about buying a non-franchised business?
We have articles and advice that can help you weigh the merits and risks of buying any kind of business. Get started with our guide, The Fundamentals of Buying a Business.