Should You Invest in a Resale Franchise?

There are many reasons franchisees decide to sell their franchise – life changes like death, divorce or retirement comes to mind – and if you are looking at investing in a resale franchise, you should neither discount nor leap into it without careful investigation. Here are some considerations to keep in mind:

Reason for the sale. If a franchise owner is moving, retiring or has other family issues that require the sale, you will probably be told this right off the bat. If he or she is selling because they can’t make a go of it, you will probably be given another reason for the sale. This brings to light the importance of careful due diligence – an experienced franchise attorney is of great assistance here.

Franchise period. If you buy a resale franchise, the existing franchise agreement will be reassigned to you. Franchise agreements are for a certain period of time, so you need to be sure the time left on the agreement allows you sufficient time to meet your investment goals. If it doesn’t, you will need to consider what a new franchise agreement will cost once the reassigned one runs out and figure that into your projections.

Price. Usually a resale franchise is priced lower than a new franchise, because part of the agreement time period has run out and any equipment that may be necessary to run the business is used, not new. But usually it is priced lower because the business is not meeting expectations and the price has been adjusted to current profits, so you need to assess if you can run it better or if there are obstacles (like a poor location) that dramatically impact the bottom line.

Carefully reviewing the financials from a resale franchise is critical. In most cases, if you are interested in the franchise business model and are looking to get a “deal”, it might just come back to bite you in the long run.