Buying a resale franchise

Franchising as a whole is a fantastic opportunity to get into business for yourself, supported by someone who's already done it.

Buying a resale franchise

Franchising as a whole is a fantastic opportunity to get into business for yourself, supported by someone who’s already done it. Independent business owners all over the world network with other owners in part to find new customers but also to develop their own skills and learn best practice from others –  a whole industry of coaching and mentorship exists around this need.

When you buy into a greenfield franchise opportunity – a territory that has not previously been occupied by a franchisee – you’re already buying into a partly established business. There will be a brand style, business operating model, some clarity around best practice for marketing and promotion of the business, managing financial matters, likely investment requirements, guidance on overcoming potential challenges and advice on many aspects of running the business. What there won’t be, usually, are any customers or local traction – the last piece of the puzzle. This is what you would be delivering as a new franchisee.

It is generally acknowledged that people who buy into a franchise model rather than start up on their own are slightly more risk averse than those who leap into the unknown with no support or model for direction. Those who buy an existing franchise territory reduce their risk even further.

At some point in a franchisee’s life, it is probable that they will decide to sell their business. For whatever reason, perhaps they have reached the end of their franchise agreement and it’s time to retire; they might want to realise their asset, sell, and use the money for other means; they may want a change of pace. Whatever the reasons, a majority of franchisees will have built a business that is ready to sell. And for those purchasers even more risk averse, it’s a perfect opportunity.

Consider buying any established business that isn’t a franchise; it is probable that there is no operating guideline or manual, no clear structure on how to run the business. In some cases, a purchaser will be lucky to have anything more than the basics. The owner/seller may not want to be involved after the purchase or worse, they might well be present and making the new owner feel bad for wanting to instigate change. Whilst buying another business can have its advantages, there are also these pitfalls to consider.

And so, buying a franchise territory that has been previously operated and is a profitable business already, is very much more attractive. It is a supported business and one step up from a greenfield franchise opportunity. As the seller leaves, the buyer can tap into the business with full training from the franchisor, a ‘how to’ guide to running the local company and a clear strategy for building the business. It is probable that an incoming franchisee will also be able to develop the business in line with any changes that the franchisor has implemented between the previous owner joining and leaving.

The benefits of buying into an established franchise territory (and indeed model) means that there is history – a track record. Having a record of the finances of a business are invaluable. It will help a purchaser to show how the business has grown and any areas for improvement. 

You’ll be more informed about what’s gone before – things that have worked, or not, and an understanding of why. Even though the franchisee is likely to have exited, there is knowledge remaining in the business. The start-up phase is typically less onerous than building from nothing – the financial rewards are visible and normal pressures, when you’re starting out with no cash flow are usually gone.

An additional benefit for a purchaser is the involvement of the Franchisor. It is in their interest to have a franchisee joining who does so with the knowledge that the disclosure of financial data, customers and staff is likely to have been more accurate, since there is the pressure of knowing that any ‘lies’ will lead to a poor start and a potentially difficult ongoing relationship.

It would be remiss of me not to caution anyone. Due diligence in buying any resale business (franchised or not) is as important as if you were buying into buying into a greenfield site. Areas of critical research are to gain a clear understanding of the financial performance and where you might be able to make an impact, the nature of customer/client relationships, how you would fit into that business, managing staff who may have been very loyal to their previous boss, whether the assets you’re buying are worth the money, and is any equipment still fit for purpose? 

Your purchase price is likely to be significantly more than a greenfield site, because a lot of the initial hard work has been done – and you’re buying the local goodwill, customers and potentially contracts. But the business should be ready for you to simply step into – no major set up, fit out, changes.

Don’t forget though, as with any new business, you will need to invest more than just cash. You will need energy, enthusiasm, an open mind for learning, a lot of your heart and soul, and just a little sprinkling of luck. Significantly less luck, though, than going it alone in a start-up with no foundations and no support.

Louise Harris
Louise Harris