One method of becoming a franchise that I personally like is buying an existing location from the franchisor or one of their franchises that want to exit the system. There are several advantages to buying a “used” franchise:
- You are in business faster, because you don’t have to find the location or work through constructing and equipping the business.
- Bank financing may be easier because the business is already up and running.
- The franchisor or the current owner may be willing to help you finance the location.
- The seller may be motivated to leave the business.
- You’re buying a business that is currently operating, has existing customers, and has an established cash flow.
- You know what the performance of the operation is and can base your investment and operating decisions on facts rather than projections.
- The location may have trained staff and management.
When buying an existing franchise, you need to conduct standard due diligence; you don't want to buy a franchise if the original franchise can’t make a go of the location and the location just isn’t economically viable. These “opportunities” need to be examined carefully. Don’t assume that you’re a smarter or better operator than the existing franchise. Also, make certain that the franchise system you are joining does not have a high turnover percentage, as that may indicate that the system offers you little chance for success.
When considering an existing franchise, always ask how many owners have run the operation before you negotiate a purchase price or sign any agreement.