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Franchise Resales - Pros and Cons

Written by: Rick Bisio

Article Overview: This article is the first a two part series dedicated to helping people better understand the how to approach and understand a franchise resale.

Franchise Resales - Pros and Cons

A few franchise candidates wish to gain their mark by starting a franchise business from scratch. Others prefer to skip the start up and purchase an up-and-running franchise business.

If you believe you might be part of the latter group, here is some franchise information to look at before you get your heart set on this path:
1. Discovering an existing franchise that is part of a established franchise system, fulfills your needs, matches your skills, at a price you can afford, in an area where you want to live can take time. Going concerns that meet these criteria don’t come along often.
2. You usually need to pay more for a successful existing franchise than you would pay to build the franchise yourself.
3. Whereas franchisors may give you an approximation of what it costs to start a franchise in Item 7 of the Franchise Disclosure Document, you often must rely on your own resources to determine the value of an existing franchise. You need to know how to value the business, or you need good advisors who are familiar with the business category or even with that franchise system.
4. Taking over an existing business can be a little like climbing on a moving train. The train is already going down the tracks. Your task is to figure out how to drive the train before it derails.

If you discover a suitable franchise, there can be many nice advantages.
1. A flourishing existing business should already own a proven customer base you can rely on once you take over.
2. A successful existing business should also hold a well-chosen group of employees that know how to conduct the day-to-day operations of the business.
3. You should be able to assume the existing lease thereby eliminating the need to search space and wait for the build-out to be accomplished.
4. You may step right into a positive cash flow situation.

Over the years I have worked with numerous people. Most possess an opinion in reference to whether it is best to pay a premium for a successful existing business or start a business from scratch. I can tell you that both approaches have their pluses and minuses. Remember that there are no free rides. If the business is successful, stable and profitable, it is going to cost more to buy and you will have a smaller upside. In other words, you are buying cash flow at the expense of growth potential.

On the other hand, if you start your own franchised business it might cost less with an smoother learning curve but the ramp up to cash flow break even will take longer.

Which constitutes the right answer? Well that is for you to answer. It you need advice, feel free to contact us at The Educated Franchise.

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Article Tags: approximation, business category, cash flow situation, customer base, disclosure document, franchise business, franchise disclosure, franchise information, franchise system, heart, moving train, own resources, path 1, positive cash flow, scratch



Related Forum Posts
Re: Enticing Franchises - Top 9 List - All Franchise listed above are in millions of dollars. Do you have the list of Franchise in thousands
Re: Info for would be franchisers... - [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there. To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1] Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published. I guess the old adage holds true of "it's not who you know, but who knows you" that's important.
how much for a franchise fee? - Dear Colleague There is no easy answer to this question. Things to consider: [list=] The sizeof the Franchise Clent base Expected Turnover Intellectual Property costs (recoup) Number of Franchises Number of employees Original Set up costs Franchise admin costs An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000. Hope that this gives you some idea Take care Ian[/list]
Re: Franchise Surveys - Another good tool to researching a franchise is to speak with their existing franchisees. This contact information is included in most Franchise Disclosure Documents. In order to get a Franchise Disclosure Document or FDD as it is often referred to, you will have to complete a basic franchise application. The franchisor will then usually provide you with the FDD at that time. Included in that book of information is a list of the existing franchisees, the contract, the investment information etc... This information is required by Federal Law to be disclosed to your prior to making a purchase. So be sure to do your research and start with the Franchise Documents to get the initial information.
Re: Info for would be franchisers... - [quote="Sebastien":2gam0klq][quote="BuzzAroundBooks":2gam0klq]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to.[/quote:2gam0klq][/quote:2gam0klq] That is really what I look for in any industry publication. We lead busy lives and when people fill their magazines with fluff, not only does it benefit no one, but it makes us truly appreciate those that don't. Thanks!


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