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When you are considering starting a new franchise, you may notice a franchise resale opportunity; this is when an existing franchisee is selling their business. This has become a lot more popular in recent years due to several reasons, but should you consider it as an opportunity for you?
One of the first things you need to understand is why a franchisee is selling their business, as this will determine how good of an opportunity it is.
Some common reasons why they may be selling:
As you can see the first 4 are common reasons why a franchisee might want to resell their business, which doesn’t mean that there is anything inherently wrong with the franchise itself or its business. Whereas the last reason is a concern as it could indicate substantial issues which will mean you could ultimately fail if you decide to embark on a franchise resale.
Just because a franchisee hasn’t performed well in their territory doesn’t mean that the franchise opportunity is a bad choice as it may have been down to the franchisee entirely. What you must determine is whether it was the franchisee or the franchise opportunity.
To do this, you should first consider the business performance against other franchisees in that franchise. When you are comparing against other franchises, you will notice differences which will influence the bottom line. After this comparison was it that the operation model was working effectively but they just weren’t making the sales required? This can be down to the sales method, the marketing strategy or even the territory.
It can be that the sales are as predicted in the franchise plan, but the costs of the business were significantly higher, thus resulting in a money losing business. In this scenario, you need to analyse the cost difference in staff, inventory and services you require against other franchisees to understand what you are over-paying for and then identify if there is a cheaper alternative.
If a franchisee is in charge of running the business, ultimately, their determination and drive will be the deciding factor on whether it works or doesn’t. There is always a chance that the opportunity is profitable, but the franchisee just didn’t give it the effort needed to run it effectively.
As starting a new business is always risky, you need to understand why it was failing because if you don’t, then what makes you think you can go in and make a difference?
As well as the normal advantages of being a franchisee, choosing a franchise resale opportunity will come with more than starting in a virgin territory.
From day one, you will have the performance data available for your franchise to work from; this is a gold mine of information to identify strengths and weaknesses, right off the bat.
Most franchises have a certain amount of brand recognition, even in unknown territories but, choosing a franchise resale, your target market will have seen and potentially purchased from your exact shop before. This means that you can expect customers on day one as they would’ve already purchased from it before and will know others in their community who have left testimonials, as most of the time consumers will not even be aware of a change of management.
As the existing franchisee may stay on for the takeover period, you can expect the staff to stay on with the franchise. This means when you enter on day one, you don’t need to concern yourself with recruiting and training your staff as they will already have the experience and skills required to do their job without your intervention.
Overall the benefits of a franchise resale mean that if you come across an opportunity for one, and you have the capital to consider it (it may cost up to 30% more than a virgin territory), then you should definitely look into it as it may be a treasure trove. If you would like to look at some of the opportunities we have available then take a look here – Franchise Opportunities