Transfers vs. New First Time Franchisees
Many of today's experienced franchisees started when they were in their early forties. Now these Baby Boomers are in their fifties and sixties and looking toward retirement. Of the 25 million or more business owners in the U.S. today, many of them are Baby Boomers.
Therefore, transfers or franchise re-sales will rise relative to new units in the next few years. These buyers will probably come mainly from multi-unit owners because they recognize and appreciate the cash flow that transfers have so there's no "ramp up" time. There are fewer Gen-Xer's (the next group following Baby Boomers) and the generation after that, the Millennials, have the least amount of capital. Add to that today's conservative lenders, we may see some compression in unit valuations ahead....all of which could add up to good news for expansion-minded multi-unit operators.*
This does not take into consideration Baby Boomers who are retiring from corporate America and may wish to own a business or franchise for the first time and who are not yet ready for the rocking chair. These Baby Boomers could be candidates for a new franchise unit or a transfer/resale.
Bottom line is the existing units with positive cash flow will be the more popular opportunity in the near term because lenders want to loan on businesses with a track record, and are more likely to loan to existing multi-unit operators with experience.
Even though franchisors will have fewer new first time franchisees, they will benefit in the long run from increased royalties from higher revenues produced by these multi-unit operators and have a stronger overall brand with great validation from these successful franchisees.
*certain parts of the first two paragraphs were taken from Transfers Ahead article by Darrell Johnson in Multiunit Franchise Magazine, Issue III 2010