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If you want to be a franchisee, you can either invest in a franchise opportunity and open a new franchise or purchase an existing one. The sale of an existing franchise is known as a franchise resale. This article will explain what a franchise resale is and explore the advantages and disadvantages of purchasing an existing franchise.
What is a Franchise Resale?
A franchise resale involves the sale of an existing franchise, offering an alternative to investing in and setting up a brand-new franchise. Buying an existing franchise can give you the benefits of a proven business model and an existing training package. Furthermore, you can access the brand’s operating systems without needing to start afresh and establish a new business.
Franchisees may sell their franchise for many reasons. For instance, they may want to move away, change careers, or have planned to sell their unit after a particular amount of time.
Advantages of Buying an Existing Franchise
1. You Get to Join a Franchise Without the Need to Start Up
If you purchase a resold franchise, you will get the benefits of a complete training package, ongoing support, and access to the franchisor’s systems without the need to start from scratch. When you buy an existing business, you also gain:
- an established client base;
- employees with experience; and
- supplier relationships.
Additionally, you will not need to scout a new location and complete an entire set-up. Instead, there is an opportunity to get started with the business immediately.
2. Less Risk in Comparison to Setting Up a New Franchise
Investing in a franchise and opening a brand new unit carries a certain level of risk for you. This is because a new business venture may not be profitable, and it is difficult to determine whether it will succeed. Contrarily, an existing franchise is an established business with a history. The franchise has previously set up the unit and made it operational. You can look at its figures and previous operations to see if there is current market interest and forecast the unit’s future success. Additionally, obtaining financing for an existing franchise with a profitable history is typically easier.
However, less risk does not mean no risk. You must conduct your due diligence and thoroughly assess the franchise resale opportunity. It is crucial for you to:
- research the franchise;
- speak to other franchisees operating within the network; and
- read all documents the franchisor has provided.
You should also seek advice from professionals such as solicitors and accountants about the legal and financial viability of the franchise.
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Disadvantages of Buying an Existing Franchise
1. It Can Be Expensive
A franchisor may charge you a premium for a franchise with a history of success. You will need to consider whether you have the capital to invest and how these fees can impact long-term profitability.
On the other hand, buying an established franchise can also be costly if the business has not proven profitable. Some franchisees choose to sell their units because they are not performing as they anticipated. If you opt to invest in such a business, you will need to have extra working capital at your disposal.
Discover the key legal and commercial issues to consider when buying a franchise.
2. Organisational Change
Another disadvantage involves difficulties changing operations, which is particularly relevant if you choose to purchase a franchise with employees. Organisational change can be difficult for both staff and customers. When a business ‘changes hands’, there is often a perceived shift in how the organisation operates. To mitigate the impact of your taking over, it is essential to carefully plan your entrance with the franchisor.
Key Takeaways
A franchise resale can be an attractive opportunity if you are looking to engage in business. A resale comes with a reduced level of risk relative to opening a brand-new franchise. These opportunities can allow you to purchase a business with:
- a proven history;
- existing employees;
- existing customers; and
- established business relationships.
Likewise, you may be able to get started in your role straight away.
Alternatively, some franchise resales concern businesses that are not doing so well. While a franchisor may charge you at a discounted initial rate, the business can require some working capital before reaching profitability. Another difficulty is that the shift in management can unsettle customers and employees. You can mitigate this by creating a smooth transition.
Overall, a franchise resale can be an excellent opportunity to own your own business. Ensure that you conduct due diligence on the opportunity. Additionally, it is essential to seek professional advice on the legal and financial viability of the venture before signing your franchise agreement.
If you would like advice regarding a franchise resale opportunity, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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