Many brand name franchise systems that have expanded to their capacity within a geographic area may not be offering new franchise opportunities. When one of these franchises goes up for sale, the application and purchasing process will be quite different than a traditional franchise start-up.
Some of the key benefits to buying an existing franchise include:
Quicker Possession Time
Since the business is already in operation, the purchase of the franchise will simulate the purchase of a pre-owned property. While you will be required to undergo the same initial training program from the franchisor, the transaction will mainly involve the existing franchisee and his or her lawyer.
Exemption From Certain Franchise Agreement Terms
Depending on the franchise system, buying an existing franchise means you will not have to worry about finding a suitable location, working with a contractor to build the site, and setting up of accounts and suppliers. If the franchise has a staff and management already in place, you may have the option to inherit this personnel.
Taking Over a Healthy Business Operation
You may be purchasing a franchise that has been operating for several years and has therefore ironed out many of the start-up challenges such as establishing a customer base and building cash-flow. Franchises are not always put up for sale for profitability reasons; the franchisee may be moving out of town, or be forced to sell for personal reasons. He or she may also be pursuing other opportunities.
Entrance Into a Successful Franchise System
By purchasing an existing franchise of a well-known or successful brand, you now become a member of this organization without being put on a waiting list. There are a number of successful systems that experience frequent franchisee turnover but the reasons for such turnovers may not be attributed to over-expansion or poor site selection. Franchisees sometimes do not meet the operating requirements or standards set by the franchisor during a specific timeframe.
An Attractive Financial Investment
When you buy an existing franchise, your invesmtent may be comparable to the cost of buying a new franchise, depending, of course, on the business’ record of profitability. The selling price is set by the franchisee which will include any goodwill the franchise has accumulated. Nevertheless, investing in a business that has an established track record of profitability makes perfect investment sense, especially from a risk perspective.
Don’t Forget Your Due Diligence
During your research and review process, you will want to verify the following with the help of a franchise lawyer or franchise consultant:
- The reason why the franchisee is selling the business. Is it for personal reasons or because of poor profitability?
- Examine the books. Are sales slipping or unstable?
- Is the location undergoing cultural, demographic, or market trend changes?
- Has the quality of service being offered by the existing staff been compromised?
- How many other existing franchises are up for sale? How much franchise turnover has there been in the last few years?
- How was the selling price determined? Has it been inflated for the wrong reasons?
- Will the franchise be soon undergoing required design changes or upgrades that you will be forced to pay?
