Existing Franchise for Sale: The advantages and disadvantages of buying an existing franchise unit

By
Services for Real Estate Pros with FranChioce Consulting

Some franchise candidates want to earn their mark by building a franchise business from scratch. Others opt to skip the startup and purchase an up-and-running franchise business.

 

If you consider you might be part of the latter group, here is some franchise information to study before you get your heart set on this path:

1.         Identifying an existing franchise that is part of a well grounded franchise system, fills your needs, fits your skills, at a price you can afford, in an area where you wish to live can take time. Going concerns that match these criteria don't come along frequently.

2.         You commonly have to pay more for a successful existing franchise than you would pay to build the franchise yourself.

3.         Whereas franchisors may give you an idea of what it costs to build a franchise in Item 7 of the Franchise Disclosure Document, you often must rely on your own resources to find out the value of an existing franchise. You need to know how to appraise 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 job is to figure out how to drive the train before it derails.

 

If you come across a suitable franchise, there can be numerous nice advantages.

1.         A thriving existing business should already have a proven client base you can rely on once you take over.

2.         A flourishing existing business should also have a happy group of employees that know how to lead the day-to-day operations of the business.

3.         You should be able to assume the existing lease thereby eliminating the need to look for space and wait for the build-out to be achieved.

4.         You may step right into a positive cash flow situation.

 

Over the years I have worked with a lot of people.  Most have an opinion in relation to whether it is more beneficial to pay a premium for a thriving existing business or build a business from scratch.  I can tell you that both approaches have their pluses and minuses.  Recall that there are no free rides.  If the business is flourishing, stable and profitable, it is going to cost more to purchase 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 faster learning curve but the ramp up to cash flow break even will be longer.

 

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

 

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The Educated Franchisee is dedicated to franchise education through the sharing of franchise information.  Our objective is -

‘To create educated franchise buyers that have clearly defined objectives and are able to recognize the right, or wrong, franchise when they see it.  An educated franchise buyer will move into the franchisee role with their expectations properly set and will have a heightened potential for success within the franchise system creating a win/win for all involved.

 

To get more franchise information about how to stack the deck in your favor -

Visit our website at www.educatedfranchisee.com or

Purchase our franchise book - The Educated Franchisee by Rick Bisio, Franchise Consultant or

Contact author directly at rbisio@educatedfranchisee.com or call 941 778 4660.

Comments (1)

real estate real estate
Providence, RI

Rick, I just commented on Ralgh's post. I repost my comments here.

There are many advantages and disadvantages for sure. In my mind, the biggest advantage of buying an existing franchise is to overcome the break-even period where it may last anywhere from 3 months to 2 years. The building-up process can be costly. If the premium is lower than the building-up cost, it will be well worth it.

Another reason is that for some franchises, there are simply no opportunity to start up a new one such as McDonald. McDonald is pretty picky. If one market is already saturated, McDonald simply would not allow a new one.

Mar 08, 2009 01:26 AM