Why Would You Invest In A Franchise Resale?

01 Mar 2018
Byadmin
FRANCHISE RESALES MAKE SENSE

When you have made a decision to explore an investment in a franchise opportunity as an investment and a quicker way to get established in business consider a resale option. An alternative to investing in, and setting up, a new franchised territory is to buy an existing one, what is known as a franchise resale.

What this would mean is that rather than starting from scratch with no database, no clients and no cash flow the franchise resale gives you customers and a cash flow from the day that the contracts are signed.

You will get full support from a franchisor (at least you should, check that this is correct when you do your due diligence) as if you were a brand new franchisee but you have the added benefit of the brand being recognised and established in your chosen territory.

If the thought of starting from scratch is daunting for you then a franchise resale is a worthy consideration but do expect to pay a premium price for an existing franchise, it can be as much as 30% more than the advertised price.

5 CONSIDERATIONS WHEN CONSIDERING A FRANCHISE RESALE 

1. Due Diligence

Do your own due diligence of the franchise opportunity.

The seller is biased, they will tell you everything great about the franchise, the territory, the opportunity etc. Speak to other franchisees and find out more about their experience. Interview/speak to clients. What do the franchisees and clients like most about the franchise? What do they like least about the franchise?

2. Receive Full Details of The Business

Ensure you receive full details of the business, not just the accounts, before making any decisions. Typical questions I would recommend that you ask are;

What are the terms the Franchise Agreement? A Franchise Agreement, as an industry standard, is for a 5 year term. Confirm with the franchisor that you will have a new agreement i.e. one that is for 5 years and that you will not be taking over the outstanding term of the current franchisee. This means that you will not be penalised if the current franchisee has not met the conditions laid out in the Franchise Agreement.

What are the ongoing fees? Typically, in addition to the franchise territory fee, there is a commission due monthly based on sales, a monthly administration fee, for many franchises you are required to purchase stock directly from the franchisor. Ask for the current fees (they will go up, that is business) and ask when they were last increased.

What is the training structure? For you to succeed in your business you will need to be supported by the franchisor and trained in the way that they expect the business to be run which ensures your success. Unfortunately, in my experience, expecting the seller to train you is not the most beneficial way. They will have developed their own habits and style which may not be the most successful.

3. Take Independent Advice

Take independent, professional advice, about the franchise valuation and securing funding. Speak with an accountant and or financial advisor and ask them to review the figures provided by the current franchisee in their sales prospectus. Most franchisors are able to offer funding solutions. For women in the UK there are many grants that are available.

4. Interview The Franchisor

When you are purchasing a re-sale franchise you are also joining a franchise network which means that it would be wise to connect with and interview the franchisor early in the exploration process.

Questions that I am asked by franchise prospects are about why I started the franchise, how long I plan to continue being at the helm, what support do I personally give.

5. Expect To Follow The Manual

Don’t buy into a franchise if you are not willing to comply with and follow the process that has been laid out by the franchisor in the Operations Manual.

One of the benefits of purchasing a franchise is that the franchisor has worked it all out for you. You should be expecting to see a quicker return on your investment than you would have from a startup business (quicker return with a resale) and the way that happens is by following the process. If there is any part of you that thinks “ah but if I did it this way it would be better” start up your own business and don’t make the investment in franchising.

Click here for information about The Athena Network franchise opportunity

Jacqueline Y B Rogers, Founder of The Athena Network