What are the advantages and disadvantages of buying a franchise resale?

Alan Wilkinson writes:

Franchise resales may come about for a number of reasons. Often a franchisee will have had an exit strategy when they first purchased the franchise and will have spent years working towards this exit, building the business and therefore the sale value with this goal in mind. In this scenario, the resale value of that franchise is likely to be high compared to others in the network. The business is likely to be in good shape, and will likely be a good proposition for a new franchisee if the higher price is not a barrier.

Conversely, sometimes a resale comes about either due to an unplanned event or because the franchisee is struggling. In this scenario, the business may not be in the best shape to be able to attract the best resale price. This can offer an incoming franchisee an opportunity to buy in at a lower price. However, thorough due diligence should be undertaken to investigate why the business was struggling – if indeed it was – and if the new franchisee can bring in skills or infrastructure to remedy this situation. Beware, however, that there may be factors that are more difficult to overcome, such as lack of demand in the area for the product or service, or a very strong competitor in the area.

In summary, a resale can offer a good opportunity to buy into an established business, so long as the new franchisee is confident that they have the skills required to take the business to the next level.

Alan Wilkinson is head of franchise development at The Franchising Centre and has been in franchising for over 25 years.