Five Things To Consider When Buying A Franchise Resale

When purchasing a pre-owned franchise, there are several factors that should be taken into account. Here are five key aspects to consider: 1. Evaluate the Franchise Reputation Prior to finalizing your decision, it is crucial to thoroughly assess the reputation of the franchise you wish to buy. This entails conducting extensive research on the franchise's track record, customer reviews, and any past legal disputes. By doing so, you can gain a better understanding of the franchise's standing within the industry and identify any potential risks or benefits. 2. Financial Assessment Performing a thorough financial analysis is another critical step when contemplating the purchase of a franchise resale. This entails examining the franchise's financial statements, including profit and loss statements, cash flow records, and balance sheets. Additionally, consider seeking the guidance of a financial advisor to ensure that the franchise is financially stable and has the potential for future growth. 3. Understand the Transfer Process Acquiring a pre-existing franchise involves a transfer process that should not be overlooked. Familiarize yourself with the franchise's transfer policies and requirements, such as whether the franchisor needs to approve the transfer and if any additional fees or training is required. This will prevent any surprises or misunderstandings later on in the purchasing process. 4. Investigate the Territory Agreement Every franchise operates within a specified territory. It is essential to review the existing territory agreement to understand its limitations and potential for expansion. Additionally, consider any competitors in the area and how existing customers perceive the franchise's brand within the territory. This knowledge will help you determine whether the resale franchise has room for growth and if it aligns with your long-term goals. 5. Seek Legal and Professional Advice Lastly, before finalizing the purchase of a franchise resale, seek guidance from professionals experienced in franchise law and business acquisitions. A lawyer specializing in franchise law can assist you in reviewing legal documents, ensuring compliance, and understanding the legal obligations associated with the purchase. It is crucial to have a clear understanding of the terms and conditions of the franchise resale to protect yourself from potential legal issues in the future. By considering these five factors, you can make an informed decision when purchasing a pre-owned franchise, mitigating potential risks and maximizing the likelihood of a successful venture.

When a franchise owner decides, for any reason, that it's time for them to leave the business, they typically put their franchise on the market. Purchasing a franchise that is already established and operational can be a highly appealing opportunity for someone looking to become a business owner.

In many instances, the franchisee who is selling will have already started the business, reducing the potential risk of purchasing a brand-new and unestablished business. The franchise should already be making money and should include a customer base and built-up reputation, as well as any necessary inventory, equipment, and established procedures.

In a franchising resale situation, there are three groups involved. The selling franchisee and the potential buyer will establish a contract to determine the purchase amount and sale conditions. However, the franchisor will also play a role in this process. As outlined in the franchise agreement, it is probable that the franchisor will have to give their consent for the sale, similar to the process of recruiting a new franchisee. The franchisor will aim to ensure that the potential buyer is suitable to take ownership of the franchise and become part of their franchise network.

When looking to buy a franchise that is being resold, it is important for the buyer to conduct thorough research and investigation, just as they would when purchasing a brand new franchise directly from the company. There are five crucial factors that should be taken into account:

What is the reason behind putting the franchise up for sale?

There are many reasons why a franchise owner may choose to sell their business. These include retirement, poor health, or a change in personal circumstances. It could also be that they always planned to sell the business after reaching a certain point of success. However, it could also be because they no longer feel passionate about the business or the brand, the franchise is not meeting their expectations, or they are having issues with the franchisor-franchisee relationship. It is crucial for any potential buyer to understand the underlying reasons for the sale and to be confident that they are not inheriting a problematic business. It is also important to thoroughly research the franchise brand and the track record of the franchisor.

What is the assessment of the franchise's worth?

The franchisee who is in charge of selling will determine the price for the sale, typically with some input from the franchisor, although it is not always the case. The seller must provide the prospective buyer with all the essential financial, managerial, and performance-related information. It is advisable for the buyer to cross-check this data with the franchisor as well. An accountant can analyze this information and determine whether the assessed value of the business is appropriate and justifiable.

How well is the franchise doing and what potential is there for further growth and expansion?

In addition to analyzing the statistics, it is important for a potential purchaser to investigate the local standing of the company and its overall accomplishments. If the franchise is not thriving or the current franchise owner is not maximizing its potential, then it is crucial to inquire about it. While an underachieving franchise can still present a promising chance for the suitable buyer who possesses the necessary abilities and qualities to reverse its course, it involves a greater level of risk. Consequently, the selling price of the franchise should consider this aspect.

What options will be implemented for the transition period?

When purchasing an existing franchise, the new owner will need to go through comprehensive training provided by the franchise company. This is necessary in order to effectively manage the business in accordance with the established systems and procedures of the franchise brand. Ongoing support is also provided. However, in most cases of franchise resale, there is also a period of transition where the outgoing franchisee remains available for a fixed period of time. During this transition, they offer on-site training and support, as well as introducing the new owner to the existing customers and other important aspects of the business. It is crucial for the negotiation process to include the parameters and duration of this transition period, which should be agreed upon in advance. The seller may be eager to move on as soon as possible, but the buyer will rely on the seller's knowledge and expertise to quickly adapt and continue the business operations smoothly.

Does the contract include a provision that prohibits competing?

The ultimate nightmare for a buyer considering purchasing a franchise is discovering that the seller decides to establish a new business nearby, directly competing with the newly acquired franchise. The initial agreement between the franchisor and franchisee usually contains a provision known as a non-compete clause or restriction. However, it is the responsibility of the franchisor to take action and enforce this clause in case of any violations. To avoid such unpleasant surprises, buyers are advised to question the seller thoroughly regarding their future plans and intentions after the sale. Furthermore, it is crucial for the contract of sale between the previous franchisee and the new owner to explicitly include a non-compete clause to safeguard the buyer's investment.

Acquiring a franchise that is up for sale offers a promising and thrilling chance to invest in a business that is already thriving and has the added advantage of being part of a franchise network. However, just like any other new business purchase, it is crucial to approach it with careful thought, thorough research, diligent investigation, and seek professional advice. In a resale scenario, conducting inquiries and negotiations may require sensitivity, but this should not discourage potential buyers from asking the necessary questions to gather all the information needed to make an informed decision before finalizing the deal.