Franchise Resale: Comparing a Resale to a New Franchise Startup

A few franchise candidates wish to gain their mark by starting a franchise business from scratch. Others prefer to skip the startup and purchase an up-and-running franchise business.

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

1. Discovering an existing franchise that is part of an established franchise system, fulfills your needs, matches your skills, at a price you can afford, in an area where you want to live can take time. Going concerns that meet these criteria dont come along often.

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

3. Whereas franchisors may give you an idea of what it costs to start a franchise in Item 7 of the Franchise Disclosure Document, you often must rely on your own resources to determine the value of an existing franchise. You need to know how to assess the business, or you need skillful advisors who are acquainted 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 growing existing business should already have a proven client base you can rely on after 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 numerous people. Most possess an opinion in reference to whether it is best to pay a premium for a successful existing business or start a business from scratch. I can tell you that both approaches have their pluses and minuses. Remember that there are no free rides. If the business is successful, stable and profitable, it is going to cost more to buy 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 a smoother learning curve but the ramp up to cash flow break even will take longer.

Which constitutes the correct answer? Well that is for you to determine. It you need advice, feel free to contact us at The Educated Franchise.

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