A franchise resale refers to the purchase and transfer of an existing franchise location, one that’s already been established and operational for some time. In this situation, a buyer purchases the franchise business from the current franchisee with the approval of the franchisor.
There are various reasons a franchisee might choose to sell their business including:
- Retirement
- Illness (personal or family member)
- Change in personal circumstances
- Avoid legal issues with the business
- Not in alignment with the brand anymore
- Business is underperforming
- Strained franchisee/franchisor relationship
While there are several advantages to considering a franchise resale, buyers must do their due diligence to ensure that the resale is a wise investment. Knowing the reason for the resale is crucial. If the reason is “retirement”, then that doesn’t immediately present a red flag. However, if a franchise is facing multiple lawsuits or not performing well, then it might be a good idea to consider other options. At the same time, buyers could snag a good deal on an underperforming franchise and then do the work to turn things around for the franchise business.
Ultimately, individuals must weigh the pros and cons of each situation and consider seeking professional advice to make an informed decision.
5 Advantages to Buying a Franchise Resale
#1 – Turnkey Business
A franchise resale offers an opportunity to buy an already established franchise business instead of starting one from scratch. This means no site selection, no build-out, no new construction, and no new round of inventory orders. Not only is everything in place, but the potential for income is present from day one of operations. A turnkey franchise gives buyers a head start to running a thriving business.
#2 – Established Deal Terms
When you buy a new franchise, all the fees and royalties are predetermined. In short, you know what you’re buying and what you’ll get for the price. However, franchise resales offer buyers extra leverage with the possibility of negotiating terms. Furthermore, the buyer’s bargaining power increases if the seller is motivated to close a deal.
#3 – Existing Customer Base
If the franchise business is successful, then there should be a solid customer base in place. The buyer’s focus is on retaining the customers, not attracting them in the first place. In most cases, having an established customer base, no matter what they look like, is better than starting from scratch.
#4 – Established Staff
Unless a buyer obtains a franchise resale and needs to “clean house” to turn things around, it’s possible to inherit and retain the existing employees. Having experienced employees with little need for training compared to a brand-new crew is a huge advantage for a business owner. The existing employees may even be able to help get the buyer up to speed as the new owner.
#5 – Improved Resale Value
According to a peer-reviewed study by the Rinker School of Business at Palm Beach Atlantic University, the resale price of a franchise is higher than non-franchised businesses.
The study examined over 2,500 business resales for over a decade, tracking the purchase prices. The data gathered concluded that franchise resales sold at a price 1.5 times higher than those of their non-franchise business counterparts. The key takeaway: a branded franchise adds value to a small business owner.
3 Potential Challenges to Buying a Franchise Resale
#1 – Navigating the Franchisor Relationship
A franchise resale purchase isn’t a transaction between only two parties. The franchisor also has a say in the matter. Before a franchise resale can take place, the franchisor must approve the new owner in the same way they approve the recruitment of new franchisees. Additionally, the buyer of a resale franchise must meet the training requirements and comply with the franchise’s operational guidelines.
#2 – Operational Transition
Buying an already successful franchise business doesn’t automatically mean continued success. This is especially true if the business’ success was closely tied to the previous owner’s efforts. It’s important that the new owner is intentional to build rapport with the customer base while boosting morale and focusing on staff retention.
#3 – Location Challenges
Another potential challenge to buying a franchise resale is transferring the location to the new owner. If the franchise location is leased, then it may require additional negotiations with the landlord for the resale to take place.
Interested in Buying a Franchise Business?
If you’re thinking about buying a franchise business, resale or not, FranNet is here to help. Our expert franchise consultants can evaluate your specific goals and abilities to find you the best franchise opportunity. They’ll also walk you through the process of becoming a franchise owner from start to finish. All of this comes at no cost to you. Schedule your free consultation today!