If you know someone who has inherited a family business, you may envy how they have a solid foundation and ready-made clientele. These aspects can seem very attractive and more stable than starting a company from the ground up.
However, is an established business as exciting and exciting as it seems? If you have been considering buying an existing franchise, this similarity can seem attractive to you. It would help to consider various aspects before deciding whether investing in an existing franchise is the right decision. Here are some of the pros and cons:
A pre-existing franchise can be an excellent way to acquire a business. If all is well, there are tremendous benefits to purchasing a pre-existing franchise:
Easier financing – Even though you might need capital financing, it is easier to obtain when there is a history of how an existing business performed. There are no guarantees that you will experience the same levels of success, but lenders will be more confident about a franchise that has proven to be profitable.
Quicker opening – Unlike a new franchise site, the seller already built the franchise and has it running. For a home-based franchise, the process and operations are in place and ready to carry on.
Existing customers bring faster revenue – An established customer base is a significant benefit for buyers of existing franchises. Most new franchise businesses have to work hard to build customer loyalty and their revenue stream over time. However, when you have pre-existing clients, you can increase your revenue levels far sooner than compared to if you were starting from scratch.
Market-Tested Brand – Established franchises are attractive because you get brand recognition along with a location and market that is already proven. If the local market has already accepted and used the franchise, a franchisee won’t worry about whether the site will be successful.
Even a well-established franchise has its share of risks. These issues may not prevent you from purchasing, but you must look into them to minimise your exposure and risk.
An expensive price tag is a possibility. A well-established, pre-owned franchise will likely be more costly than the one you start from scratch. While it may bring in more money faster, it may not be the best financial balance for your current position. Think about where you should put your money to get the most out of your franchising efforts.
There may be problems that are not readily apparent – Reselling a franchise involves working with the franchisor, which may help you make an informed decision and preserve your investment. However, it’s crucial to know whether the current owner is trying to get rid of the property for the wrong reasons. These are some questions you should be asking – Are the profit margins thin? Is there a bad name for it? Has there been any criminal activity in this area recently?
Or is it just that good personnel are hard to come by? A franchisee is attempting to offload their business for a cause. Is their higher purchase price created by an efficiently functioning and highly profitable franchise? If you’re not cautious, you may find yourself in charge of a dodgy business riddled with problems you didn’t anticipate.
Managing Change – It’s challenging to bring about change in businesses. It’s a problem for employees, and consumers may have problems with it as well. Getting all the stakeholders working in your best interest may be more challenging if you’re a new franchise owner. Customers who have remained loyal to the former owner may be reluctant to welcome you. Naturally, some client attrition is to be anticipated; therefore, plan things well with the franchisor before entering the market to mitigate this.
Make Smart Decisions
It is understood that every purchase scenario is unique. It is possible to enter franchising via the sale of an existing franchise but consider the seller’s circumstances, performance, and motives while making your decision. If you do your homework and have solid franchisor assistance, buying an established franchise is a great option.
Always consider various factors, do not be hasty with making decisions and gather as much information as possible about the business you plan to be a part of. Check on the franchisor and talk to existing franchisees to better understand how they run their business and whether they get the support they need.
If you want any more information on working smarter, contact the experts at The Franchise Institute. You can call us on 1300 855 435 or fill in this contact form, and one of our experts will contact you as soon as possible to answer all your questions.
Thanks for reading, The Franchise Institute Team 1300 855 435