Franchise Resales: 4 Benefits of Buying a Previously Owned Franchise

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buying franchise resale

Franchising in the UK is on the up. The industry generates more than £15 billion for the UK economy, a figure that has increased by 46 percent in the last 10 years, according to Franchise Supermarket. There are more than 44,000 franchise business units in the UK, 97 percent of which are running in profitability. Clearly, more and more entrepreneurs are taking advantage of the franchise model as a low-risk business venture compared to the unpredictable independent start-up route. But what has this got to do with franchise resales?

Well, there is a way that prospective franchisees can reduce risk even further by purchasing an existing franchise unit. Franchise resales occur when franchisees decide to retire, relocate or pursue other interests. They give entrepreneurs the chance to pick up where the previous franchisee left off, taking the business and making sure it continues to run smoothly in its existing set-up. Lets take a closer look at why you should consider taking on a franchise resale.

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Benefits of franchise resales

Some people relish the challenge of starting their own franchise unit or even their own independent business but there are many benefits for those who purchase a pre-owned franchise. To name a few, they give franchisees the opportunity to take on a business that is already up and running, boasting a secure market presence, a good location, existing customers, a positive cash flow and trained staff.

As you can tell, there are plenty of benefits of buying a franchise resale, but lets look at four of the biggest ones in more detail:

1. You can access accurate profit projections

If you launch your own franchise unit, youll have a good idea of the brands previous performance and whether it has a good track record. However, it will be hard for you to predict exactly how well a new business unit will do in your specific location with its specific local population. The franchise disclosure document should provide vital information, but you will have no way of knowing whether the financial projections provided are accurate and achievable.

Franchise resales eliminate this uncertainty. If youre taking on an existing business, youll have access to the previous franchisees actual financial statements. Although theyre not a guarantee, theyll provide a good indication of how the business is likely to perform in the future. Of course, as with any business, you will still need to work hard to ensure that it continues to run in profitability.

2. There will be a ready-made customer base

Depending on the sector that the franchise belongs to, it is likely to have a pool of loyal customers already, who know and trust the brand. If not, there will almost certainly be existing awareness of the brand in the local area, especially if its situated in a visible location with high public footfall.

As potential customers will already be aware of your presence in the local market, the need for marketing campaigns will be reduced. This is a huge plus point, as certain forms of promotional activity such as billboard, radio and television adverts can be extremely expensive. Having an existing customer base will also save you time and effort in attracting new consumers, which will allow you to dedicate more hours and energy into developing your new business.

3. It will already have a workforce of experienced staff

If the franchise has been turning over a profit, it probably has a solid team of dependable employees already in place. The previous franchisee will have spent a lot of time building the perfect workforce and training them to ensure they have the right skillset. As a result, you wont have to spend your own time and money recruiting and training new workers.

Whats more, not only will the staff be skilled and knowledgeable, but they are also likely to have an existing knowledge of the business and its strategies. While you would otherwise have to dedicate time to explaining operating procedures and instilling values into new employees, your workforce will have this knowledge already. This means the business will be able to run at maximum efficiency from the get-go, making your life much easier.

4. Profit can be made sooner

The costs involved in setting up a new franchise unit can be substantial, so buying a franchise unit that is already kitted out, has brand awareness and comes with a skilled workforce means that the initial investment should be lower.

As a result, you should reach your break-even point much sooner than if you had started a franchise unit from scratch. This, of course, means youll be able to make a profit in a much shorter space of time and boost your revenue in the initial stages.

Selling your franchise unit

So, weve looked at the benefits of buying a franchise resale. Now lets imagine youre an existing franchisee looking to sell your franchise. How do you go about it?

The first step is to establish whether your franchise unit is successful or not. If its losing money and youre not sure that this will change under new ownership, the most sensible thing to do would be to close down your business. Youll probably find it hard to attract a buyer if interested entrepreneurs suspect that youre walking away because you cant drive profitability.

If, however, the business has a proven track record of success, valuing it and finding a buyer should be relatively straightforward.

How to value a franchise resale

To start the valuation process, youll need to use your financial statements to determine the net cash flow.

To get to this figure, deduct business-related expenses from the profit generated. The number you get should then be multiplied to calculate the value of the franchise unit. The number of times it should be multiplied depends upon a couple of factors, including the stability of the cash flow and the forecasted business growth, but a profitable business would be valued at between two and five times the net cash flow.

Its important to remember that franchise resale valuations are never exact. The franchisor may have different expectations of the business, so the next step in the process is negotiations. At this stage, any gaps in the valuation can be closed. It is recommended that you consult an independent franchise specialist for advice, as they will be able to offer impartiality and support during the negotiation discussions.

It should be noted that whatever price is paid for a franchise resale, it is likely to be significantly higher than that of a new franchise unit. This additional expense can usually be justified by the fact that the business is already up and running and is likely to have existing customers/accounts, so the new buyer will be able to make a profit almost immediately.

Finding a buyer

The other key step in selling your franchise unit is finding your buyer. They wont come to you in the hope that youre planning on selling, so youll need to put your business out there if youre to attract a large number of entrepreneurs. This is vital if youre to get the best price for your unit, as buyers will be more inclined to offer a higher price if they can see there is competition.

Try advertising your resale on popular business websites where entrepreneurs and prospective franchisees will look. By getting word out, you can even attract people who had previously only considered building a franchise unit from scratch.

Lets say, for example, that a potential business owner has their heart set on starting a gym in a particular area but they can see that the market is already saturated. They may be interested to know that one of the gym franchises thats already there is looking for a new owner.

Are franchise resales worth looking into?

So, is buying a resale franchise a good idea? Resale opportunities can be a great way to get into the franchise industry without the stresses and worries associated with starting a new franchise unit from scratch. Not only do you have the security of running a franchise with a proven business model, but you have the added bonus of running a franchise with a positive track record in its specific location.

The most complicated part of a franchise resale is valuing it or determining whether you are paying a good price for it (depending on whether youre the seller or the buyer). However, you can seek support in this stage from experienced franchise professionals. Theyll be able to tell you whether the suggested price is an accurate reflection of the business on offer and whether you should take action or not.

At the end of the day, if youre sensible and perform thorough research, buying a pre-owned franchise can be a fantastic opportunity to make a profit quickly without the hassle of building a franchise unit from the ground up.

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