Benefits of Buying a Franchise Resale: What to Consider

Jim Gormley, President, The Franchise Consulting Company Canada • July 2, 2020

If you’re new to Canada and looking at starting a new business, a franchise resale may meet your needs. As a newcomer adjusting to life in a new country, a franchise resale may be less challenging than opening a brand new franchise.

The franchise industry is fueling economic growth in Canada with approximately 4,300 new franchise units opening each year. However, there is an alternative to opening a brand new franchise location and buying a franchise resale may be worth considering. There are a number of benefits of buying a franchise resale.

What is a Franchise Resale?

A franchise resale is the sale or transfer of a franchise that is already in operation. If buying and launching a brand new franchise seems challenging, a franchise resale may provide you with another option to consider. However, even if you are considering buying a franchise resale, you will still need to:

Conduct extensive due diligence (research), just as you would when buying a new franchise, on the franchisee, as well as the franchisor
Understand why the franchisee is motivated to sell their franchise.

Benefits of Buying a Franchise Resale

With any franchise investment, whether you’re considering a new franchise or a resale, you will need to conduct thorough research to ensure you make an informed decision. This due diligence will help you to avoid any unwanted surprises, before you make a large and long-term investment.

When you buy a franchise resale, you have the opportunity to start off with a number of advantages and key benefits. These are just some of the benefits that would take you more time to achieve if you were to purchase a brand new franchise.

A franchise resale allows prospective franchisees to:

Assess the financial history of the business. This will help you see the actual financial results for the business and allow you to project the financial performance that you can expect.
Start with an existing business plan and marketing strategy that is currently in place.
Start the business immediately and generate cash flow from day one.
Benefit from existing cash flow, customers, staff, brand presence, and network of contacts.
Reduce initial growing pains that can occur when opening a new location.

What You Need to Consider: Why is the Franchise for Sale?

Franchises may be for sale for a number of reasons, and it’s not always because the franchise is in trouble. Franchisors often have a percentage of their franchises available for resale, and it’s common especially if it is a more mature franchise brand.

If you’re interested in buying a resale, it’s important to understand why the seller is motivated to sell their franchise. The existing owner may not always be open about why they are selling, especially if the franchise is underperforming, so speak to others in addition to the owner, for example: speak to other franchisees in the system; and existing employees to gain more information..

Common Reasons Why Franchisees Sell their Franchise

The franchisee is retiring or moving.
The franchisee has run the business for a number of years and would like a change rather than commit to another 5 - 10 year franchise term.
The franchise is stable and performing well and the franchisee would like to realize their investment.
The franchisee would like the capital from the sale for another business opportunity.
The franchisee has realized that they are not a fit for franchising and want to do something else. This self-awareness is critical before you invest in a franchise.
The franchisee and the franchisor don’t agree on the direction of the brand. This may not be an issue for a potential buyer.
The franchisee has experienced a major life change and franchising is no longer suitable. Life changes be related to: a divorce; new addition to the family; or a change in a partner’s work situation.
The franchise is underperforming and a new franchisee is required to turn the situation around.
The franchise is underperforming due to market conditions or industry trends. In this case, you’ll need to understand and predict trends that may negatively impact the business.

When you clearly understand why the franchisee is motivated to sell their franchise, you can better assess the risk you may be facing. Knowing the seller’s motivation, combined with conducting due diligence will help you decide whether or not the franchise resale is a good business decision for you.

When you buy a franchise resale, you have the chance to start your business with a number of advantages and key benefits. As a newcomer adjusting to life in Canada, it can provide you with the advantages of owning a franchise without the growing pains of buying a brand new franchise. As with any major investment, it’s important to research the franchise, and seek legal and financial advice to make a decision that’s best for you.

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8 Money Questions to Ask about Your Franchising Investment

By Jim Gormley, President, The Franchise Consulting Company Canada • December 17, 2020

It’s essential to know the total costs that are involved to ensure that the franchise is a good financial option for you. So, here are eight important money questions you need to ask to ensure that you make a wise financial decision.

Why Understanding Total Investment Cost is Essential

By Jim Gormley • December 16, 2020

If you’re thinking about franchising in Canada you need to really understand the costs that you will have to pay. It’s best if you know what the costs are going to be when you start to research a franchise rather than at the end. If you know what the costs are, then you can decide what you can afford and which franchises and brands you can consider. The total investment cost will vary based on the franchise segment (for example: retail; personal services; fast food; etc) and the brand that you choose within that segment. So, What is the Total Investment Cost? The total investment cost is typically shown as a range in the Franchisor’s Franchise Disclosure Document. It is the total of the Estimated Initial Investment. The range can include fees for a wide number of costs such as: Franchise Fees Real Estate or Rent Insurance Training Computer Software Furniture/Fixture/Equipment costs These are just some of the costs among many. Be sure to find out exactly what the total investment cost covers by asking the franchisor for a full breakdown of the costs. Franchisors will be able to give you an accurate picture of what you can expect to pay.

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By Joseph Adler, Partner, Hoffer Adler LLP • September 23, 2020

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