What you need to know about buying a franchise resale

18/06/2018 08:00 | Start a business

Franchise resales - what you need to know

If you're considering buying a resale, there are a few things you need to consider before you sign the franchise agreement. Whether itís a well known, international franchise, or a small, up-and-coming franchise, youíll need to think long and hard about whether the resale is a good investment. Here, we take a look at why you should consider a resale and what you need to think about before you go ahead with the purchase.

Why would you buy a resale?

1. It exists in a favourable territory
One of the main reasons many people consider buying a resale is that it covers an ideal territory. It may be the perfect territory because itís close to home, or because itís a region you know well. It might particularly suit the type of industry you want to enter, or it might depend on certain resources or other businesses that are only available there. Whatever your reason, it's important not to get too fixated on a franchise just because it's in a good area. Everything else has to line up, too. Thereís no sense in buying a well-located resale if you donít have the necessary skills to run it.

2. It is fully staffed and operational
Resales can also prove a good buy because theyíre already fully staffed and completely operational. This is a particular bonus if you find out that you get on well with the team in place and donít need to make changes. Finding the right employees, training them, and getting them operational experience can take a lot of time and effort, so itís understandable why so many potential franchisees find the idea of a fully staffed franchise so enticing. However, franchisees also need to be aware of the fact that their new acquisition may not be optimally staffed, and changes may be required.

3. It already has an established customer base
Finally, franchise resales are an attractive proposition because theyíve already had time to establish regular clients and an extensive market presence. This means fewer resources need to be devoted to marketing and advertising, allowing time, money, and labour to be diverted toward ensuring high standards of service are offered to every customer. An extensive client base is typically a good thing, but prospective buyers do need to consider the possibility that the franchise's existing reputation may limit the number of new customers you can attract. It may be the case that the previous franchisee caused irreparable damage to the franchiseís reputation, from which it wonít be possible to recover.

What you need to think about when buying a resale

1. Why is it being sold?
The most important question to ask yourself with any franchise resale is Ďwhy is it being sold?í In the vast majority of cases, it will be a completely legitimate reason. Maybe the former franchisor is retiring, or they want to start up their own franchise. Perhaps they're moving to the other end of the country and will no longer be able to run the franchise. It could be that it was always their plan to quickly sell the franchise once they had established it as a competitive business.

However, itís also possible that the resale is occurring due to poor performance or something equally concerning. Many franchises are sold on because theyíre simply not profitable enough, others because the franchisee hasnít received the support they need from the franchisor. In some cases, the exclusive territory may have been poorly drawn up, and there's not sufficient business to keep the franchise alive. Whatever the reason, it's vital that your desire to become a franchisee doesnít override potential warning signs.

2. Do you bring anything extra to the franchise?
With franchise resales, itís also important to ask whether youíre going to bring anything extra to the franchise. What ideas do you have for its future? Do you intend to make any changes? If so, what impact are they likely to have? As you consider making the purchase, donít forget to recognise the fact that you will be moving into a long-established team thatís always been organised by a single individual. How is your leadership going to change this? Could your changes have a disruptive effect?

When it comes to working with an established team, you need to make sure that your contributions are going to be constructive. Employees will be used to doing things in a certain way and Ė though change isnít always bad Ė coming into a business and radically altering the way it operates may not be as effective as you imagine.

3. Is it the right franchise for you?
As well as considering whether the territory and franchise unit are right for you, potential buyers also need to consider the relationship with the franchisor. Are you entering into an agreement that benefits you both? Can you see yourself working closely with the franchisor? Is the franchise a good fit and is it where you want to be? Though everything else may be perfect, if the franchise isnít right itís going to be difficult to make a success of your business.

4. Have you done your due diligence?
Finally, itís essential that you carry out your due diligence. Whether youíre looking to buy famous franchises or complete unknowns, every franchisee should perform due diligence. Not only will it give you an indication of whether the business is financially viable, but it will also offer some insight into whether you're a suitable franchisee.

Resales can be a fantastic opportunity for the right buyer. However, franchisees need to be sure that theyíre making a good decision before they sign up. There are a variety of reasons the franchise may be up for sale and an enormous number of things that could go wrong with a resale. Franchisees also need to understand that theyíll be compared to the previous owner for a long time before the franchise becomes truly theirs. Despite this, if you think you've got what it takes and have done your research, a resale may be the ideal way to become a high-flying, successful franchisee.

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