Buying an existing franchise: Weighing up the pros and cons
There are a number of reasons why an existing franchise may be for sale and it's worth investigating before you proceed with a purchase. In many cases though, a resale is just a natural part of franchising, where existing franchisees retire and the business becomes available. Resales have become become increasingly common as a growing number of networks in the industry become established. This maturity has seen the balance tip towards the availability of existing franchises over the opportunity for new areas.
Advantages of buying an existing franchise
- Existing customer base
The main difference between buying a new franchise and buying an existing business is that a lot of the hard work has already been done for you; many of the elements required are already in place. You won't have to worry about finding your first customers, because a ready-made customer base is already waiting for you. Although you will need to manage the on-going stock, there will be no worries about setting this up and gauging initial levels.
- Trained and knowledgeable staff in place
If you are applying for a franchise that involves hiring staff, then the staff will already be in place. A further plus point is that the staff will already be trained and should have good existing customer relationships. Also, if the previous franchisee has done well with the business, there will be a strong sense of recognition and goodwill in the area.
- An idea of revenue
You should also have a good idea about the projected revenue from the previous franchisee's figures. So as long as you stick to the same business plan and the same method of generating business, then hopefully you will do well – the existing business will at least give you realistic expectations and should bring you the results to match.
- Quick income return
Whereas starting a franchise business from scratch may take longer to generate income, with a resale, the process is shorter because you will have practically everything in place. Of course, one of the conditions of a franchisee taking on a business, whether green-field or existing, is that they complete the training satisfactorily. As soon as you have done this, you will be ready to start operating the business and earning money.
- Grab a bargain
Another benefit of taking on an existing business is that it may be possible to get it for a very reasonable price if that business has not been performing well. This is an opportunity for people who feel that they are up to the challenge of turning a struggling business around and making it into a profitable enterprise. The key here is an understanding as to why the business was underperforming. Although there are many benefits in buying an existing franchise, you still need to be aware that there are potential challenges and drawbacks.
Disadvantages of buying an existing franchise
- Resistance to change
Whilst a good existing customer base can be an advantage, if the previous franchisee was successful, especially with customers, there is always a chance that the existing customer base may be wary of a stranger taking over the business. It's rare, but it has been known for existing customers to leave simply because they don't have the same kind of relationship with the new franchisee.
- Personnel issues
With staff, this is an even greater challenge in a number of ways. Personnel issues can be a problem, whether it's high levels of absenteeism or disagreements between some of the staff members. While the staff may have been what the previous franchisee wanted, they may not be up to the standards that you have in mind. Another potential problem is that some of the staff members may be used to the old way of working with the previous franchisee, and may be wary of a new arrival. Most of the time, this is not a problem, but in some cases, some of the staff may find it difficult to get used to the new regime.
- You can't start from scratch
The state of the existing franchise can be seen as a drawback, whether it's in positive or negative health. If it's positive, then this will command a higher upfront fee because it is a golden opportunity to invest in a business that's doing very well. On the other hand, if the business isn't doing so well and is going for a cheaper fee, it is still up to you to put in more work to turn it around. In particular, repairing relationships with customers or suppliers will be a difficult task. You will have to earn their trust, and that may take some time. If there are many spiralling cost problems, this will also need to be dealt with as swiftly as possible. So, when you buy a resale franchise, you will need to hit the ground running – more so than if you were to take on a new one from scratch. Because you are taking on an existing business, there will be an element of the unknown when you start. In order to maintain a profitable business, you will need to have the best resources and staff available. Although key equipment will be to a standard stipulated by the franchisor, it is possible that some element may need servicing from day one, or may need replacing in a shorter time period than expected.
With a new business, there is ample opportunity to build up the customer base and earn money, but you need to be on the ball from the word go if you are taking on an existing business. If you're prepared for that though, it could mean big profits from the offset. The Franchising Bible, 2nd edition, published by Crimson Publishing, is available to buy now.