Bill Powell, Franchise Business Consultant, FranNet MidAmerica
Besides the usual advantages of franchises, which include a proven concept and systems, initial and ongoing training, and support from both the franchisor and other franchisees; there are several distinct advantages to franchise resales. They may include cash flow, in-place employee team and customer relationships, less startup time and risk, and reputation in the marketplace. It’s important to note that—at a given time—there may not be a desirable resale in the industry you want in a given geographic area; they’re not always plentiful.
If you buy a franchise resale that’s established and cash flowing well, you’ll generally pay a premium. If you buy one that’s near or below break-even, you’ll generally pay less but should know you’ll have work to do to “right the ship” and move forward toward healthier performance.
Why do franchise owners sell their franchises?
Reasons include a change in family circumstances (e.g., sickness, divorce, death or moving out of town), retirement, no succession plan, bad business skills/practices that have produced sub-optimal results, lack of fit (e.g., from the start, or related to life goals or lifestyle), or that it’s the end of the franchise agreement term and the owner simply wants to move on.
In any case, do your due diligence to determine whether a resale is a wise investment and a good fit for you and your family. To help you navigate the process, your franchise consultant will provide valuable education and coaching. The franchisor (the franchise parent company) will provide information through consultation, webinars and the Federal Trade Commission-mandated franchise disclosure document. You’ll get information from the franchisee (the seller), such as the state of the business (as they see it) and the financials. Generally, you’ll also get key information about the franchise from other franchisees in that system.
Whether or not you’re a football fan, consider this football field analogy. Starting your own business is like beginning on the 1-yard line; you’ve got to move the ball 99 yards to get to a thriving business. Buying a franchise (non-resale) is like starting near the 40-yard line; you’re that distance from the goal. However, buying a cash flowing franchise resale can be like starting near the 20-yard line (much closer to your end zone).
In all cases, beware if anyone tells you it’s easy. You’ve got to weigh the anticipated benefits and risks, and then make the best decision for you and your family.