Why buy an existing franchise

If you are looking to become an entrepreneur you have three options. Start a business from scratch, buy an existing business or buy the rights to a local franchise or in other words, become a franchisee. A variation of buying an existing business or buying the rights to a local franchise is a blend of the two; buying an existing franchise.

Read More Here is more information about buying a franchise.

Just like everything, there are advantages and disadvantages. Here’s a look at those advantages and disadvantages.

Advantages of buying an existing franchiseOne of the strengths of most franchise models is that if they are running well their performance and success is predictable. If a buyer is able to review the performance of the franchise they are buying as well as compare it to other franchises in the system, this provides a very clear insight about the opportunity they are buying. This doesn’t guarantee the buyer will be successful but it helps provide confidence that if they execute the franchise model they have a great chance of success. This opportunity is also not available to a buyer that wants to acquire an independent business.Training and bringing the buyer up to speed when they own the franchise is so much easier. This is because the buyer can look to the franchisor and their established training model as well as the seller of the franchise who knows their local market.Obtaining third party finance such as an SBA loan may be easier. SBA lenders like successful franchise models that have a history of success. This is part of the world the buyer is entering and if they have the right credit score, history and management experience their chances of having a loan approved are much higher.

Disadvantages of buying an existing franchiseMost buyers do not wish to sell their home and relocate to a new city to buy and run a business. Being able to find a franchise for sale in an industry the buyer likes not far from where they live is very challenging.If the franchise is available, if it’s performing well the buyer may not be able to afford the purchase price. If the franchise is not performing well then the buyer may not be willing to pay the asking price and to then try and turn the franchise around.A lot of franchise models encourage existing franchisees to open more than one location. If the franchise is a mature franchise those locations may have already been sold and built out denying a natural growth opportunity for the buyer.The franchise buyer needs to follow the franchise system and model. It cannot be tweaked or “improved” as that is the decision of the franchisor.The franchise buyer needs to be clear what they are buying including any policies and procedures of the franchisor. For example, the franchise model may dictate large capital expenditures on items such as store upgrades or remodels. This can include large capital expenditures on Fixtures, Furniture or Equipment as the franchisor wants to keep the location fresh and current; all of which takes money from the franchisee. Other examples include new or expanded product lines. Also check how long the franchise agreement is current and if there is any cost to renew it.Successful franchising is about a strong partnership. The franchisor generally collects a lot of industry and market knowledge and uses that information to pass down to the franchisees. A good franchisee should recognize that expertise and be willing to adapt and adopt. If not, being part of a franchise system is not for them.The buying process may be more complicated than an independent business. The franchisor will have to approve the buyer and the franchisee will want to feel comfortable with selling to the buyer.

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A buyer of an existing franchise needs to not only do their due diligence on the franchise they wish to buy but also with the franchisor and the system they are offering. Franchising is the right way to go for the right buyer. I’m a member of the Murphy Business and Financial franchise and like the help and added value I get from working within its system. However before signing into the franchise system and a separate agreement to buy the franchise, make sure it’s crystal clear what you are buying and if there are any upcoming changes to the model. Most franchisors will require a personal guarantee from the buyer so make sure you are comfortable with this requirement.

If you would like more information about buying a franchise please visit my webpage Buy a franchise or buy a copy of my book: Successfully buy your franchise.

For more immediate help with buying a franchise, send an email to Andrew Rogerson or give me a call on 916 570-2674.

The article Why buy an existing franchise first appeared on Andrew Rogerson and Rogerson Business Services.