The first several months of a business’s life cycle are the most critical for its long-term success.
Unfortunately, between raising capital to cover startup costs, hiring new employees and dealing with lifestyle changes that impact your finances and your family — it can also be the most stressful for new franchisees.
The good news is you can skip the headaches and still enjoy all of the benefits of franchise ownership without starting from scratch by buying an existing franchise. This process is known as a franchise resale.
What Is A Franchise Resale?
There are many great reasons to enter a franchise business. However, there are perfectly good reasons to exit it as well — retirement, relocation, a change of lifestyle or a lack of expected performance, just to name a few.
Of course, after paying a franchise fee and building the business, franchise operators want to recoup some of their costs. Thus, rather than just closing up shop, they put their franchise up for sale, opening doors for aspiring franchise operators like you to step in and take over.
How Does It Work?
When starting a brand new franchise, franchise operators work directly with the franchise group, which means that they will be able to get to know the franchise management team, interview existing franchisees and, perhaps most importantly, receive the franchise disclosure document, which provides key financial, operational and historical details about the franchise system.
On the other hand, when buying an existing franchise, you will typically work one-on-one with the seller, and you are not entitled to the same access and information. However, that doesn’t mean you shouldn’t ask for it. Just like when buying a new franchise, the more information you can gather, the better.
There are also two different types of franchise resales — asset sales and share sales. In an asset sale, the buyer purchases individual assets of the company, such as equipment, licenses, inventory and goodwill. Asset sales do not generally involve cash, and the seller often retains debt obligations. Buyers do not, however, actually acquire any possession of the company itself.
In a share sale (also known as a stock sale), the buyer purchases ownership stakes in the seller’s legal entity. The amount of shares can vary and can include up to 100 percent of the business. In either case, it is important to have a knowledgeable attorney, who understands the legal and tax implications, guide you through the process.
When To Buy An Existing Franchise — And When To Walk Away
So what makes an existing franchise a good target for a resale? The obvious answer is profitability; but that answer is wrong.
The truth is the difference between a good franchise resale opportunity and a bad one is a lot more nuanced. A successful franchise that is making money may seem like the better investment, but you’ll likely have to pay a premium for it, and you need to determine whether that premium price is worth it or if the hefty price tag will weigh you down.
On the other hand, a struggling franchise can flail for a lot of reasons, but two of the three most common causes of franchise failure — a lack of funds and a lack of vision — can be corrected with a change of ownership. If you feel you can step in and right the ship, you might be able to get into the franchise at a bargain price.
Whether a franchise is profitable or not, there is one universal reason for walking away from a resale opportunity — a negative perception in the marketplace. If past customers and members of the community view the franchise in a negative light, it can be extremely difficult, if not impossible, to win them back; simply hanging an “under new ownership” sign on your offices or trucks won’t be enough.
Interested In Franchise Resale Opportunities With Bin There Dump That?
At Bin There Dump That, we want all of our franchise operators to be successful, and we provide training and support programs specifically for those who joined our family through franchise resales.
If you are interested in learning more about the process or resale opportunities throughout North America, contact us today.