For many potential franchisees, taking over a company that is already generating cash flow may be a better match and less risky option.
A wonderful approach to start a business is through franchising. A successful operating system, high unit profitability, a top-notch management staff, unique and worthwhile product/service offerings, and happy franchisees are things to look for.
The majority of individuals who consider opening a franchise eventually look at new unit development. This is due to the fact that the majority of franchise opportunity marketing focuses on selling new units. You might not even consider purchasing an existing unit or collection of units. However, resale opportunities should unquestionably be on your radar if you’re thinking about creating a franchise business. Keep in mind that new unit development can be mixed with resales! Therefore, for the proper customers, it may not be a case of “either/or” (new OR resale), but rather “yes/and” (new AND resale).
Related Read: Selling Your Franchise Opportunity as a Franchisor
Why you should think about resale possibilities
A fantastic technique to determine the value potential of any system you are thinking about is to evaluate resale alternatives. When owners sell their properties, what do they get? Is the company too new to have a significant history of resales? Resales are they going to new operators (who don’t know the brand as well) or are they going to existing owners who want to expand (since their experience as a franchisee is positive)? Owners may leave after a long tenure and a history of positive cash flow, or they may leave quickly because something didn’t work out. Examining resales can reveal a lot about a system.
Second, for many potential franchisees, taking over a company that is already profitable may be a better match and less risky option. If you already have cash flow, you can expand your inventory or quickly build out new units than if you had to start from beginning. Reselling means that the company is already up and running. You’ll have a lot greater understanding of the business’s potential, the competitors, and prospective improvement areas.
You can take a tour of the location or the area. You could encounter the personnel while mystery shopping. You can evaluate current marketing initiatives, costs, and their effects on sales. Reviewing business outcomes from several years, including the epidemic, is possible. When launching a franchise from scratch, it is impossible to predict whether an idea will be successful or whether a suitable location will be available. You must also hire and train every member of your team. A new franchise unit may require up to three years to scale up completely. Yes, entering a going concern can feel a bit like sipping from a firehose, but if you properly evaluate the company and have faith in the team already in place, you should be able to succeed.
Things to remember
Remember that franchise salesmen often do not receive commission on resales, but rather on new unit sales. If they offer you advise, bear in mind their motivations. Strong resale programs and defined procedures are typically features of large franchise networks. However, it frequently takes a long for smaller brands to manage transfers in a coordinated manner. Don’t be deterred if a newer system doesn’t yet have an efficient resale scheme.
Every community has business brokers with alternatives for franchise resale. You could also speak with owners one-on-one and express your interest. They won’t perceive you as a threat and may be prepared to offer information on the property if you make it clear that your only interest is in resale chances.
Franchisees leave for a variety of causes. Drivers include retirement, the desire to profit from their years of labor, burnout, relocations, illness, changes in personal circumstances, etc. Due to its connection to lease expirations and renewal dates, the transfer cadence in healthy franchise systems is very regular. Only unforeseen personal circumstances that force an exit cause surprises. Unfortunately, turnover is caused by profitability problems for other brands. Make that system churn is caused by typical retirements and not a warning sign concerning system viability as you investigate resale options.
Finally, pay particular attention to what the corporate team has to say about the departing franchisee and the causes of system turnover as you discuss resale options. Franchise systems naturally experience turnover. Defense of the corporate team against turnover is not. It’s quite impolite to put the responsibility for turnover on franchisees, yet more often than not, during mystery shopping, I hear, “It was just a horrible fit.” Remember that a franchise system’s corporate team reserves the right to decide who can join. If the situation really is one of poor fit, it speaks poorly of corporate’s approval procedure.
As many franchise owners as you can should be contacted to find out if they are expanding and investing in new units, including resales. Speak with other owners who have purchased resales through that system. Has the company lived up to their expectations? Have they since expanded with new construction or other resales? How did they get off to a fast start and keep it going?
You might discover that somebody entrepreneur in your local neighborhood has already paved a portion of the road to business ownership. They need someone like you to take over the company when they retire because they are prepared to do so.
Source: Entreprenuer
Related Reads: Franchise advice for selecting the ideal franchisee
To get to know who are the industry key players, visit our Interview of the Week page.
To stay updated, visit our Franchise News section.
To learn more, visit our Franchising Tips section.
0 comments