64% of candidates at the 2015 International Franchise Expo expressed interest in a franchise resale, as opposed to starting a franchise from the ground up.
A franchise resale is exactly what it sounds like: a pre-existing, already operational franchise unit that is on the market to be transferred from a franchisee to a new franchisee.
How can a franchise resale be beneficial to a new franchisee?
- No start-up delays from real estate acquisition, construction, or other related reasons
- Little, if any, hiring to perform
- Established financial and operational records
It might help to think of the franchise resale process as similar to buying a house. Buying a custom-made house enables you to be in more control and get what you want. However, like building a franchise from the ground up, it opens you up to being responsible for the unexpected time and money setbacks that can happen with construction.
With a franchise resale, someone else has experienced the growing pains of the business, leaving the opportunity for you to come in and put your touches on the franchise.
Why are there franchise resales?
Several reasons exist for current franchisees to want to sell their business, including:
- The franchisee wants to move
- The franchisee is retiring
- The franchisee is downsizing his/her business portfolio
- The franchisee simply wants out of business ownership
Franchise resales have been found to be beneficial to franchisors by way of:
- Increased royalties as a by-product of a more engaged franchisee
- Reduced brand equity hit from the appearance of a closed/vacated location
- Lessening the number of closures on record
As Johnny Sellyn of Franchise Resales said, “It helps no one to have a franchisee in the system that doesn’t want to be there.”
Doing Your Due Diligence
Of course, you still have to do your research to make sure you getting into a viable opportunity. Here are some things to consider, in addition to the regular areas to consider in buying a franchise:
- Why is the franchisee leaving the franchise in the first place? Is this reason related to franchise profitability that can’t be rectified?
- Is the sale price reasonable?
- Is the sale being structured as a share sale or asset sale? Check with a lawyer and an accountant to see which is best for you.