This article are provided for information purposes only, and are not intended as legal advice.


Franchises – do you buy new or an existing franchise ?

August 17th, 2009

You have decided that you want to buy a franchise, but new or an existing franchise.  Some franchises do not have any more territories in a certain cities therefore the only way to buy that type of franchise is buying an existing franchise.  Some franchises have never been to a town or city before therefore, there is no past history to see if it will be successful in that location.

 

Franchises can be good but it comes down to location, location, location.  You can have a good franchise but if it is located in the wrong place, there will be no traffic and the franchise will not succeed.  There are advantages and disadvantages of an existing franchise:

 

Advantages of buying an existing franchise

  • you know the traffic of the existing franchise
  • you have immediate cash flow
  • you can determine if the location is good (by the volume of business at that location compared to sales for the average franchise)
  • if is a good operator and good franchise and you will may have trained, and hopefully good staff

 

Disadvantages of buying an existing franchise

  • could be a bad operator who has given customers a poor experience therefore you may be unable to attract them back to your location
  • could be a poor location
  • may need a lot of repairs and a face lift immediately
  • may have poor staff with poor attitudes

 

Which one is better, it is a personal choice.  Be careful of the franchiser.   Some franchisers pride themselves that no franchise has ever closed.  They may be correct, but they may have sold the same store as a new franchise many times, each time, the franchisee has gone bankrupt and the store is taken back by the franchiser.  If you are buying a franchise in an office building, check to see the occupancy of the building.  Remember, tenants may have moved out, the property may technically be fully occupied but 50% of the building may be empty.  This is what happened in a fast food franchise that I knew.  The landlord tried to increase the rent because the building was fully occupied but 50% of the floors in the building were empty.  Unfortunately, the fast food restaurant went bankrupt and the franchiser took back the store for the third time.  I am not sure if they run it as a corporate store or if they have resold the location again.


Filed under: Franchises — Gary Landa @ 9:39 am


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