Franchise Resale: Is It Worth It?

Introduction

Are you considering buying a franchise but don’t want to start from scratch? Franchise resales can seem like the perfect solution, but are they really? While some resales offer a turnkey business opportunity, finding the right one can be challenging. Here, we explore the world of franchise resales, examining the pros and cons to help you determine if this path to ownership is right for you.

What is a Franchise Resale?

A franchise resale occurs when an existing franchisee decides to sell their business. Unlike starting a new franchise location from the ground up, buying a resale means acquiring an already operational business, which may include a loyal customer base, trained staff, and established cash flow. On the surface, it sounds ideal—but is it the right move for you? Let’s dig deeper.

Advantages

Pre-existing Customer Base

One of the biggest advantages of buying a franchise resale is the pre-existing customer base. Instead of spending months or even years building clientele, you can hit the ground running with a business that’s already generating sales.

Trained Staff and Operations

A resale often means inheriting trained staff, established operations, and proven systems. You’re not starting from scratch; there’s already a team familiar with the business.

Immediate Cash Flow

Because the business is already operational, you may see cash flow right away, a benefit compared to launching a new franchise and waiting for it to grow.

Potentially Lower Risk

With a franchise resale, there’s often reduced risk since you can review the franchise’s historical performance. Unlike a new location, you’ll have access to financial records, helping you determine if the business is truly profitable.

Challenges

Why is it for Sale?

It’s essential to understand why the franchise is being sold. Is it due to retirement, or are there underlying issues such as declining sales or increased competition? Investigate the reasons behind the sale before committing.

Why Didn’t Others Buy It?

Consider why this opportunity is available. If the franchise is a good investment, why didn’t another franchisee or a family member of the current owner purchase it? Also, if it’s performing well, why didn’t the owner hire a manager to oversee operations?

Outdated or Underperforming Business

Some resales involve older, underperforming locations that may need significant investment to modernize or reinvigorate the brand. This can mean additional costs before you see any returns, offsetting the resale’s advantages.

Difficult Financial Assessment

While you get access to the business’s financial history, assessing its future potential can be challenging. Poor management may have led to inflated expenses or declining sales, which could require time and effort to reverse.

Higher Upfront Costs

Resales can come with higher upfront costs compared to opening a new location. You’re paying for the goodwill, assets, and potential of an operational business, often at a premium, especially if the business is profitable.

Why is it Hard to Find a Good Franchise Resale?

Limited Supply

Good resale opportunities are hard to find. Successful franchisees rarely sell unless they’re retiring or moving on. This limited supply makes it challenging to find well-performing businesses for sale.

High Demand

When a strong franchise resale hits the market, it often attracts a lot of attention, driving up the price and competition, making it tough for first-time buyers to secure a deal.

Not All Listings are Profitable

Not every resale listing is a gold mine. Many are struggling businesses. The challenge is sorting through options to find one that aligns with your financial goals and risk tolerance.

Economics of Franchise Resales

Purchase Price

The purchase price of a franchise resale varies based on factors like brand, location, and profitability. It can range from $100,000 to over $1 million, depending on the size and market.

Sales Price Multiples

Typically, the sales price is a multiple of the seller’s discretionary earnings (SDE)—essentially the business’s earnings for the owner, multiplied by a figure (usually 3-6 times the SDE).

Additional Costs

Even with a well-performing resale, you may need to invest in upgrades, equipment, or marketing to reach your desired performance level, further affecting the overall investment.

Pros of Buying a Franchise Resale

• Immediate Cash Flow Existing customer base, trained staff, and established operations mean you may see cash flow quickly.
• Lower Risk Access to historical financial data can provide insight into profitability and stability.

Cons of Buying a Franchise Resale

• Higher Upfront Costs Premium prices for established cash flow and operational business.
• Potential Underperformance Some resales may be outdated or underperforming, requiring additional investments.
• Limited Availability Finding a profitable, cash-flow-positive franchise resale can be challenging.
• Difficult Financial Assessment Accurately predicting future growth and identifying necessary improvements can be tricky without hands-on experience.

Conclusion

Franchise resales can offer an easier path to business ownership, but they come with challenges, particularly in finding the right opportunity. If you’re ready to explore franchise resales or franchise ownership in general, visit Vetted Biz for in-depth insights and listings.

Thank you for considering this guide, and best of luck with your franchise journey!