If you want to buy a franchise, should you buy a new franchise from the master franchiser or should you buy a resale, one which has already been owned and operated by an existing investor? There are pros and cons with both and you will have to pick the one which suits you the best. Here are few things which you need to consider:
Buying an existing franchise:
- has a proven track record of revenue
- may or may not be profitable, if it is losing money, can you determine why and correct the problems or is it losing money because it is in a poor location. Remember, even the best franchisers pick the wrong locations and franchises are either moved or closed down.
- has existing staff, this could be a plus or a negative. If they have bad work ethics, that could be the reason for the poor sales, if the work environment needs to be changed, will they be willing to accept the changes or will you have to incur severance costs to replace all the existing staff
- existing franchise may be near the point which the franchiser forces the franchisee to update the store therefore there could be a large capital outlay required shortly after purchasing the franchise
- the franchise agreement may be near the end of the term and may or may not be renewed
Buying a new franchise
- no proven track record of sales therefore you do not know if this is a good location
- not existing customer base, you have to build everything from scratch
- will have start up operating losses until the revenue is large enough to cover the costs
- may get the newest and latest design in the franchise with more space, better layout and possibly more brands/product lines offered by the franchiser
- may be able to get bank financing for a new store vs an existing store. There are government programs in Canada which makes it easier to obtain leasehold improvement financing for new franchisees
- you may need to supplement the franchiser marketing with local marketing to improve sales quickly
There are a few items to consider when looking to buy a franchise.