In today’s hyper competitive economy buying an existing or established franchise business can offer an individual a number of distinct advantages, and often sometimes an even greater chance of success versus launching a new franchise business. In some cases these advantages could ultimately make the difference between success and failure for the average entrepreneur. Below you will find a list of some of the major and more obvious potential advantages of investing in an established franchise business. This would include a verifiable track record, lower investment, established customers, current income, and generally a lower risk of failure.
Track Record & History: When you buy an existing franchise business you have the advantage of being able to review and validate detailed past financial records that can help demonstrate whether the target business is ultimately a good investment or not. With a new franchise opportunity in most cases you are relying solely on potential sales projections provided by the franchise company based on demographics and how other established units are performing. In short, having the ability to see actual yearly sales volume, net income, and operating costs can greatly increase your chances of making a good investment decision.
Potentially Lower Investment: In some cases it’s not unusual to be able to purchase an existing franchise business for much less than the initial costs of a start-up opportunity. This scenario is even more attractive when you consider that the business may already be well established and profitable. And as a re-sale you may only be subject to a modest transfer fee versus paying a full franchise fee that new franchisees typically pay. You can view listings and compare general sales information about existing franchise businesses on directories such as AZFranchises.com and www.bizbuysell.com.
Established Customer Base: When you buy an existing franchise business you also have the benefit of a built in customer base that has hopefully created a large reservoir of good will that will remain in place after the transfer to new ownership. It’s comforting to know that the previous owner has already invested a lot of time and money to create a loyal clientele and subsequent revenue stream. This should theoretically allow you more time to concentrate on other aspects of the business.
Current Income or Cash Flow: In general, the majority of new franchise businesses don’t start making a profit until their second year of operation. This can be challenging of course for the owner operator who may not have adequate working capital to meet his business and personal expenses in the interim. In most cases (if you have made a prudent purchase) with an existing and established franchise you can rely on a fairly predictable cash flow that should cover your expenses (including debt service) and allow you to make a profit.
Easier To Finance: Whether you are seeking bank financing or the owner is offering seller financing as part of the acquisition terms, you should in most case have a much easier time securing acceptable financing to buy an existing franchise. Lenders and Banks make no secret they prefer working with established businesses that can provide a detailed financial history of performance versus working with a start-up. With seller financing you can negotiate and secure acceptable terms directly with the owner and avoid the headaches and restrictions associated with securing bank financing for an acquisition.
Less Risk: Although buying a new franchise business is considered statistically much less risky than starting a non-franchised business from scratch, buying an existing franchise with an established track record is generally even less risky. Even new franchise locations occasionally fail for a myriad of reasons including under capitalization, fierce competition, or a poor location. Existing franchises on the other had that have been established 5 years or more and have overcome the obstacles that all new small businesses face generally have a very low rate of failure.
Summary: Please keep in mind that all prospective business buyers should thoroughly investigate any franchise or business, obtain all appropriate disclosure documents available, and seek expert consultation prior to making any investment decisions.