Advantages of buying a franchise resale
Franchise resale experts Derrick Simpson and Jess Bains talk to us about the advantages of buying a franchise resale.
The statistics relating to the success of franchises bought as sales of existing businesses are becoming well known and are being taken into account by prospective purchasers.
Results of the NatWest/bfa Survey of UK Franchising show that 7 out of 10 franchises acquired over the last two years had been previously operating before they were bought. A clear indication the message about the strength of a resales acquisition over a new “greenfield” location is being recognised as the logical way to buy into franchising.
The stability obtained through taking on a trading business is clear to see:
- Cash flowing through the business from day 1
- Brand presence in the local market place
- Clients and customers from the start
- Stock, staff and property (if appropriate) all in place
- Business to planning is easier to develop from known data
- Smoother funding process due to the proven business history
- The purchaser’s task is to grow what is already there
Considerations
Developing a business presence in a new territory can be time consuming and costly so the advantage of taking on an existing franchise, that is already known in the area and which has current customers and clients, is clear. That is not to say growing any business is easy - far from it – but it is easier to move on and drive a process that is already underway. To speed up a rolling ball as opposed to pushing it to start from a standstill position is always the energy efficient option.
Financial support
The above positive elements which demonstrate why buying a franchise for resale would be a strong option to consider also make the opportunity attractive to secure banking facilities for your new business. All businesses will usually require some form of banking facility and many will require additional funding most often in the form of a loan. If not a loan then, at the very least, an overdraft facility is usually required to support a level of working capital.
When presenting a structured business plan to the franchise units of a bank to secure these facilities, the strength of the proposal and therefore the likelihood of its being approved will, in part, depend on your business projections.
With an existing business there is clear evidence of what has been achieved by the current owner so projections can be based on fact and this will give considerable weight to the proposal. This in turn will make it more likely to be accepted because the previous trading history and brand presence plus your drive and background all combine with a franchise resale to make this option the logical route into franchising.
Franchise resales are big business in 21st century and investing in such an opportunity presents certain advantages over a new franchise location or independent business. Nationally renowned Franchise Resales Consultant for Franchise Sales & Resales, Jess Bains, elaborates.
As with any business transaction, when investing in a franchise resales opportunity, it is imperative that you recognise what you are receiving in return for the money paid to the franchisor. While the franchisor does provide assistance in exchange for the fees they receive; not all of them are identical.
Franchisors provide value in different areas depending on the strengths and strategy of their business model. You should identify why you are buying one franchise over others and set appropriate expectations before making your decision.
A franchise resale provides advantages in the categories listed below:
Established Track Record
When you buy a franchise resale, you are usually investing in a franchise concept, which has products and services that have sold successfully. You will have trading history to learn from and to support your forecast for the future. Investing in a franchise resale is based on an already existing business model that, in most cases, has worked successfully for the franchise owner.
Brand Recognition
A franchise owner can profit from the brand recognition that a franchise resale provides. If you start your own business it can take many years to build a brand in a competitive market. There are no guarantees that the consumers will identify the brand as a product leader. A franchise resale can provide owners with immediate brand recognition.
Instant Cash Flow
An established franchise for resale will offer instant cash flow. If you start a new business it may take anything from 12 to 18 months before your business starts to make a profit. With a franchise resale you have an existing customer base of clients using your services and products.
Experienced Staff
Most franchises for resale will have experienced team of staff, who will have been trained and experienced in the day to day running of the business. The existing franchise owner may also stay on for a period of time, enabling a smooth takeover period and to ensure you fully understand the systems and working methods of the franchise resale. The franchisor will provide training where appropriate; a five to 10 day induction course is typical.
Marketing Support
It can be extremely costly for an independent business owner to market their business, whereas a franchise resale has the advantage of already having an existing marketing strategy in place. Also, the franchisor will have a franchise agreement that normally works to supply franchisees with marketing campaigns to ensure customers identify with and remember the brand. Belonging to a franchise reduces marketing costs, which are shared equally with other franchise owners.
Reduced Risk
Investing in a franchise resale limits the risks that are involved in business, most banks will look favourably upon lending to a franchise resale as opposed to a new business start-up.
