There is a pet franchise for sale where I live in Melbourne, but after some research I found out that it is more expensive to buy this than opening a new one in a neighbouring town. I understand a lot of this will be to do with them having potentially a database of customers, but what are the other benefits? How do I know if should buy this or buy a new one?
There are many benefits to buying an established franchise. As you pointed out, they should have an existing client base who they should have a good relationship with, and a profitable business. Their accounts will let you see how profitable it is, or isn’t. If profitable you could be making money from day one.
Buying a franchise resale allows you to assess the success or failure rate of the company. If the current owners are successful, and you are willing to work as hard as they have, there is no reason why you too wouldn’t be as successful. If they have been on a decline, then you need to seriously consider whether you could turn the fortunes of the business around. Even if you work harder than them it does not mean that you will be more successful as outside factors could be accountable for why the business has not been performing to the required standards.
The business is already successful in this area, but would it be as successful in the neighbouring area? You need to carefully look at the neighbouring area independently from the success or failure of the existing franchise for sale.
If the business is successful, the franchise owners will have invested time and money in promoting their franchise to the local community and should have a good relationship with their clients and suppliers. If you were to buy a new business, you would be building up your reputation and clients from scratch.
Ask why they are selling. There are many reasons why a franchisee may be selling – retirement, moving location, ill health, their exit strategy from the start has been to sell a profitable business, not the right franchise for them.
There are many advantages to buying an existing franchise:
· Established customer based that could be making you money from day one
· Good reputation in the area
· The business already exists so no need to find location, source staff and suppliers, purchase equipment, uniforms, signage etc.
· Easier to finance as the banks will have records of an already successful business and so happy to lend based on this.
· You have trained staff, no need to find and retrain good staff
· Have established suppliers who may already be offering the franchise owner attractive prices if a good relationship has been built up
There are also disadvantages:
· A resale is more expensive to buy as you are buying the goodwill of the established business
· Not always problem free, hence why it is important to know why the owners are selling the franchise
· Do the premises need decorating? Is the furniture and equipment dated? Need to take into consideration whether the premises and/or equipment need modernised and replaced.
· Is the staff staying? You need to find out who is going and who is staying as cannot reply on having a workforce in place only to find out that some are moving on and you will need to recruit and train new staff anyway.
· Are there any changes expected in the local area that could affect the business? Any new developments or construction work taking place that could have a negative impact on your business?
· Any new competitors entering the area that cold affect your future performance?
· If the franchise owner has been on a decline, are you able to turn it around?
One thing that you need to remember that just the same amount of due care, attention and research that you would put into buying a new franchise will be needed when considering buying a resale business.