Franchise Resales may offer your best opportunity to become a successful franchisee overnight

Existing franchises for sale by their owners. What’s wrong with that?

In the United Kingdom, reports Johnny Sellyn, a founder of FranchiseResales.com, a third of all franchise sales are resales. In the United States, however, franchise resales account for merely a small fraction of total franchise sales. Why?

Sellyn says that American franchise buyers seem to think there’s something wrong with an existing franchise business if it’s for sale.

Resales cost more money

American franchise prospects would rather buy new, even though buying new means starting the business from scratch. There’s nothing wrong with buying new, but not all franchise prospects are cut out for starting from scratch. Many, in fact, are better suited for taking control of an existing business, with immediate cash flow, and not worrying about finding a location, hiring staff, and waiting for the first customer to buy something.

Of course, acquiring an existing franchise business, with all of the start up headaches behind it, and a bountiful financial statement, will likely cost more money than buying a franchise opportunity and starting it from scratch. When they sell, franchisees are looking for top dollar, especially for a profitable business. The added expense may explain why more franchise seekers do not buy existing franchise businesses. Either they can’t afford to, or they don’t want to pay the extra money.

Advantages of buying an existing business

In spite of the economics, there are numerous advantages to buying an established franchise, including:

• If the business requires a retail location, it already exists. Someone has already negotiated with the landlord and established the location under the franchise brand.
• Employees are in place; they’ve been trained and they know what to do.
• Equipment is in place and in working order.
• Stock is on the shelves, and in the warehouse, waiting to be sold.
• Customers already exist, so sales receipts are coming in daily.
• The business has a history, so buyers can study past performance and realistically project future performance.

In addition, if you need financing, banks and leasing companies are eager to step in especially because the business has a history. If it’s been successful until now, chances are the business will continue generating profits. Even sellers are sometimes willing to provide financing!

Even though you’ll likely pay more money for a resale, the upcharge may be worth it to avoid the headaches, the stress, the anxiety, and the uncertainties of starting anew.

Disadvantages of buying an existing franchise

But to be fair, not everyone is cut out for buying an existing franchise (not everyone is cut out for buying a franchise at all), and there are clearly disadvantages to doing so, including:

• The business location may not be very good. The business could be moved, but that requires more money, and it’s almost like starting from scratch.
• Current employees may not be reliable or trustworthy. It’s possible they weren’t well trained.
• Equipment may be in place, but it could be on its last leg (although it’s smart to check it out before agreeing to the sale price).
• While a flow of customers is usually a good thing, not all customers are created equal. If the location isn’t very good, chances are the customers aren’t all that good, either.

But don’t be overly concerned about the disadvantages because before you buy the business you get a chance to kick the tires, so to speak. You can evaluate all aspects of the business and even engage professional assistance to be sure you understand what you’re buying.

Why is the business for sale?

Pay attention to why the business is for sale, but don’t be surprised if you never know the real reason.

Business owners sell for a variety of reasons – retirement, the opportunity to trade up, poor health, etc. – but many businesses are sold because they’re failing, or there’s a misfit between the business and the franchisee, or between the franchisee and the franchisor.

Of course, if the business is failing, you’ll know because the owner is expected to provide audited financial statements, which you and your accountant can review. The owner needs to justify the asking price for the business, so you can expect to have some frank discussions about the performance of the business, backed up with performance records.

Buying an under-performing business

Buying a failing, or shall we say, under-performing business, is not necessarily a disadvantage. Some buyers (especially franchisees who seek multiple units of the same brand) look only for failing businesses because they’re seasoned turn-around artists. These franchisees buy businesses at bargain prices, but that’s only an advantage for operators who know how to profitably rebuild a business.

The franchisor’s approval is required

No one buys a franchise without a franchisor’s approval, so even though the franchisee is selling the business, he or she can’t do so without the franchisor vetting and approving the buyer, and also providing a franchise disclosure document.

Even if you’re a seasoned business operator, you will be required to complete the franchisor’s training program. The exception would be granted to someone who’s already in the franchise network and is buying an additional unit. In fact, franchisors prefer those buyers, especially if they’re proven operators.

Who pays the franchisor?

A resale comes with a franchise agreement and requires a franchise fee, paid to the franchisor. The seller may pay the fee out of proceeds received for the business, or the buyer may pay the fee in addition to paying for the business.

To some extent, the sale of a franchise is governed by the seller’s franchise agreement. The “transfer,” i.e. sale of a franchise, is carefully spelled out in franchise agreements, so every franchisee knows, from the point of acquiring a franchise, the terms for transferring the franchise.

Where to find resales

If you decide that a franchise resale makes sense for you, or you want to consider the possibilities, contact FranchiseResales.com.

You can also contact franchisors, business brokers, and franchise brokers to inquire about resale opportunities. Don’t make the mistake of thinking that franchise resales are tainted. You might find just the deal you’ve been looking for, and at a price you can afford.

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Categorised in: Financing, Franchise FAQ's

This post was written by Dr. John Hayes