When it comes to exploring franchise opportunities you have two choices… Start a brand new one or buy a franchise resale, i.e., an existing franchise for sale. Both options have their distinct advantages. For example most likely your options are exponentially greater when starting a new franchise yet a franchise resale will generally have an existing revenue stream, has completed the build out, staff in place, etc. These are all things that could give you, the owner, a significant head start to building your next business. Here are some important things to know when considering a franchise resale.

1. Types of Franchise Resales – My firm handles a lot of franchise resales and I can tell you they come in all forms. I don’t mean industry or type of business but rather the stage of the business. Some are thriving with strong revenues and cash flow, some are struggling and in need of a more motivated and resourceful owner at the helm, and believe it or not, some are just sitting out there as the previous owner walked away. Yes we have seen resales where the owner got everything ready to go and for one reason or another decided not to pursue the business. All of these can present excellent opportunities to the right investor.

2. Not All Franchise Resales are Public – There are several owners and even franchisors that prefer to keep their resales private and look to franchise consultants and other franchisees to secure a new buyer. This means they are not publicly advertised on any business for sale websites. For this reason it is important to connect with a local franchise consultant who handles resales and let them know your criteria. Chances are they may know of something that others do not.

3. Who Handles the Resale? – When it comes to franchise resales there are three primary methods of handling the transaction. Sometimes the current franchise owner handles it all themselves although we have found this can be problematic unless they have experience in selling businesses. Other times they seek the services of someone like myself to serve as their broker and assist in the process. The last of the methods is they notify the franchisor they wish to sell and the franchisor handles the process for them. A good franchise consultant can often let you know with a resale how it is being handled.

4. As a Buyer You Still Must Complete the Discovery Process – As a buyer of a franchise resale you are agreeing to become a franchisee which means even though it is an existing franchise for sale you must still complete the basic franchise discovery process just as if you were buying a brand new franchise. The reason for this is a franchisor cannot engage in a legally binding agreement until they have completed the process such as a full review of the Franchise Disclosure Document, franchise agreement, etc. Buying an existing franchise is a two pronged process including reviewing and negotiating the terms of the deal with the current owner as well as completing the franchise discovery process. A good franchise consultant with experience in handling franchise resales can assist you through this process.

5. Who Pays the Fees? When it comes to buying a franchise resale there are fees involved. Certainly if the seller is using a broker then the broker charges a fee which is paid by the seller. In most cases, similar to a franchise fee most franchise resales will involve a transfer fee. The average transfer fee is about $20,000 which is usually also paid by the seller but can be negotiated.

6. The Franchisor Gets Final Say – This is a biggie and can often throw both my buyer and seller for a loop. A franchisor gets to choose who they feel is the right person to be their franchisee and can always decline a potential investor. Yes, buyer and seller can agree on price, terms, and whatever will make the deal happen but if the franchisor does not approve of the new buyer the deal won’t happen. I tell my buyers all the time, “even if you are not 100% sure on this, when you are speaking with the franchisor bring your A game.” I have worked on many deals where a prospective buyer was serious about buying the business but took a lackadaisical approach with the franchisor, and they declined to bless the deal.

If you are serious about exploring franchise resales in your area or perhaps considering selling your franchise, our firm has a lot of experience in handling these transactions and would be happy to speak with you.  Don’t forget to check out the franchise resales listed on FranCentral!

Submitted by Franchise Consultant and Resale Specialist Marc Stephens