For people wishing to establish their own business, franchising has several benefits versus beginning from scratch. Entrepreneurs may launch their own organization with less risk because to the franchisor’s established business concepts, training, and continuous assistance. It has been established that there are roughly three ways to go into business on your own: start from scratch and build a business from the ground up, pursue a franchise concept, or investigate the possibilities that come with purchasing an existing franchise operation — which may reduce the overall risk of small business ownership even further. Here are some benefits and downsides to consider while researching the current company marketplace for individuals considering the acquisition of an existing franchise — or resale.
Pro: inheriting an already successful operation
You may skip the onboarding process because everything is already in place, including operations, technology, people, and vendor/supplier connections. Getting a franchise up and running is no easy task, and hopefully the firm will have outperformed the existing owner’s breakeven threshold. There are no site selection alternatives to consider, leasing conditions to negotiate, and, best of all, the opportunity to inherit an established client base.
Con: inheriting a mess
When it comes to franchise resales, it’s difficult to know exactly what you’re getting. While all of the benefits listed above portray a rosy picture of a successful firm, it’s also conceivable that it’s everything but. For all you know, the current owner may have done a poor job of administering the franchise. Perhaps the necessary walk-in traffic hasn’t arrived in sufficient quantities to maintain the business. The company could be in financial trouble, and the sale was simply an opportunity for the owner to get out of a jam. Which gets us to the most important issue of all: why is the existing owner trying to sell? Regardless of the response, never neglect to request and review the operation’s books. If the present owner isn’t forthcoming with the operation’s financial performance and details, you can usually surmise the reason why.
Pro: the selling price is always negotiable
Because you are not purchasing a franchise for the first time, you will not be required to pay the franchisor’s first franchise fee, which is usually non-negotiable. An actual enterprise is already in the works, but they must still satisfy the requirements of their monthly royalty payments. You can make your own fair offer as a prospective buyer. However, like with any discussion, the ultimate selling conditions are frequently determined by the seller.
Con: the selling terms may not be favorable
Before you can arrive at a monetary figure, you’ll need to learn about the present owner’s existing responsibilities to the franchisor. Is the franchisor given first refusal to acquire back the business? Do they plan to? Do your homework on the existing franchise agreement and find out if those conditions will be applied to you as the new owner. The prices and terms of a resale, including fees and royalties, may alter significantly from the initial agreement. Learn about transfer fees, any expenditures associated with your orientation as a new owner, and any mandatory training.
Pro: built-in customer base and reputation
Assuming the existing franchise owner does a good job promoting the firm, you may be inheriting a client base and an operation with a good reputation. Stepping into a resale opportunity might be a piece of cake if the firm is in a good location and has satisfied the standards of the local target market. The financial records of the franchise owners should be sufficient to establish the level of success. It may be easy sailing if you don’t have to hit the bricks on day one to attract consumers.
Con: overcoming a bad reputation
If the establishment failed to satisfy the expectations of the local target market, you may have an uphill struggle that is tough to overcome. Even if the establishment is under “new management,” a bad reputation may not be enough to turn things around. You’ll want to validate not only with other franchisees in the system, but also with your consumer base. Spend as much time as you need to look over the establishment’s internet evaluations. No difficulty with five stars! Three stars or less? Gulp. “…good luck with allllll that,” Jerry Seinfeld used to remark.
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