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BUY AN EXISTING FRANCHISE

 

The purchase of a franchise re-sale gives a franchise buyer the ultimate in peace-of-mind. Buyers can buy a business that not only has the security and comfort of being a franchise, but also an opportunity that is ‘up-and-running’ with cash flow, customers, etc. The transfer of an existing franchise business is called a franchise re-sale of franchise resale because the territory was already ‘purchased’ from the franchisor…the buyer is now buying that business but from a franchisee owner, not the franchisor. But it is important to note that the franchisor HAS TO approve of the buyer of a franchise resale.

 

For some people, franchise resales carry a stigma. People erroneously believe that a business would not be for sale if it was a good business. The fact is, however, that thousands of ‘good businesses’ sell every year for HUMAN reasons. They get sick, they experience life-changing events like family births, deaths or re-locations.. And oftentimes, owners just want to retire or even start a different business.

 

But from a buyer’s perspective, franchise re-sales have some very attractive advantages of independent existing business re-sales and new franchises.

 

Advantages of Buying a Franchise Re-sale

Besides the benefits of franchising, which you can read more about by clicking here

 

The franchise resale also provides a buyer with:

  • An existing franchise business that is already in operation
  • Cash flow
  • Customers
  • Brand presence in the market
  • Depending on the franchise re-sale, inventory, staff and equipment
  • Historical performance which aids in securing funding.
  • Peace of mind. Not only is the business a franchise, but it is already in operation.

 

Franchise re-sales are the ultimate in win-win when it comes to purchasing an existing business. You get the security, systems, and benefits that franchises provide, AND the comfort of knowing how well the business is performing. You don’t have to go through all of the hard work that comes with the opening a new franchise…no site selection, no staff interviews, no “I-am-building-it-and-I-hope-they-come” in terms of customers. For thousands of buyers every year, a franchise re-sale business opportunity is the right choice. Franstop and Sunbelt Business Brokers can assist in helping you find a franchise business that is right for you.

 

Nearly every franchisor will have franchisees looking to sell their business at any given time. Most franchise sellers keep their intentions confidential, as it is not in the best interest of the business to alert the general public, and especially the employees, customers and vendors of the business, that it is for sale. What follows are the basic steps of purchasing a franchise re-sale:

 

Steps to buying a franchise resale

The process to buy an existing franchise business tends to be more complex then when you buy a new franchise. When buying a new franchise, one typically does the bulk of their investigation and due diligence on the franchise itself. A buyer of a franchise re-sale must do the same work, but also must thoroughly investigate the individual franchise unit they are purchasing. The process can be time consuming, and thousand of franchise re-sale buyers utilize the help of a business broker to help them navigate this journey. Some of the major franchise re-sale buying process components include:

 

Find a franchise business: Most sellers will not specifically name their business in a for sale ad. They use generic, vague terms to describe the business and location. Buyers scan websites like Franstop.com and peruse the listings for sale. When they find one that they may like, they then call the representing broker (if the seller is using a broker) to get more detailed information. The broker of a franchise resale will more than likely require the potential buyer to give some personal information before they release more details about the business. Buyers should be prepared to discuss their backgrounds, business buying objectives and financial status before receiving more information about the franchise resale.

 

Once the seller or broker is comfortable that the buyer is a viable prospect, they should distribute a detailed overview of the franchise re-sale. This overview, often called a Confidential Business Profile, provides the buyer with detailed information about the franchise resale opportunity. It will include financial information such as gross sales, and owner profit. The profile should also contain a description of the franchise territory being offered for sale, and may also inform the buyer of the owner’s reason for sale. Once the profile is reviewed, buyers can proceed to the next step of the process.

 

Buyer/Seller Meeting: If a buyer is interested in pursuing the purchase of a franchise resale, they should request to meet with the seller. This meeting allows the buyer to ask questions specific to the operations of the business. It also allows the seller to meet and more or less interview the buyer (remember, BOTH parties have to agree to sell to one another). This meeting is NOT a negotiation and the price of the business should not be a topic of discussion.

 

Valuing A Business: Most franchise re-sales will already have a price. The price of any small business re-sale should have some level of correlation to the financial performance of the business. Business brokers assisting franchise sellers typically take into consideration current market conditions as well as the business’ performance when giving their opinion of price. Franchise re-sales buyers may request copies of the financials of the business, to analyze and even hire a 3rd party to help determine what they believe is a fair price for the business.

 

It is important to understand that business valuation is not an exact science, and there are several different methods to consider when valuing a business. A prepared seller and/or broker should be able to clearly demonstrate why the price makes sense.

 

Offer, Counter-offer and Negotiation: Price and terms negotiation can be a delicate and frustrating part of any franchise re-sale purchase. Sellers will emphasize the positive. Buyers will emphasize the deficiencies. It is not personal, but feelings can easily get hurt.

 

At the end of the day, a business is worth what a buyer is willing to pay. Buyers typically will base their offers on the HISTORICAL performance of the business, but also need to believe that there is ‘upside’ on top of the current performance.

 

Franchise re-sales buyers should understand that most business for sale produce multiple buyer prospects. Thus, a low-ball strategy usually means not only no sale, but disqualification from the process. Buyers should be prepared to offer a fair price, and to justify the fairness of their offer. On the other hand, franchise resale sellers and their brokers understand that buyers are typically looking at more than one option, and thus do not want to push away buyers with unrealistic pricing. Those are the unwritten rules. The rest of the negotiation is about compromise. Both buyer and seller have to be able to see the other’s perspective. Not compromising typically ends the discussion with no deal. The negotiation stage is where the presence of a business broker can be very valuable, and Sunbelt Business Brokers have successfully sold tens of thousands of franchise re-sales throughout North America. By working together, with the mutual goal of constructing a transaction, negotiations can be friendly and productive.

 

Due Diligence: Once the price and terms are agreed upon, a contingent contract is put in place between the buyer and seller. The contract is contingent because a) both parties need to perform further investigation on each other to make sure there is a good fit and b) the buyer has to be approved by the seller for the purchase of the franchise re-sale.

 

Due diligence can be time consuming, especially if buyer, seller or both have never been involved in a franchise resale before. Having an experienced broker to guide the parties through the process may be the difference between a successful sale or a deal that falls apart. Sunbelt Business Brokers and Franstop can also help the buyer secure the franchise financing they need to complete a deal.

 

Completion: After due diligence, the steps to finalize a franchise re-sale transaction include: final purchase agreement; franchisor approval; legal documentation of the sale; and buyer signing a franchise agreement from the franchisor. Most franchisors will provide documentation on the items necessary to complete a franchise resale transaction. Sunbelt Business Brokers are of course also well versed in this process.

FREQUENTLY ASKED QUESTIONS

Why is Sunbelt / Franstop the Best Place to Help Me Buy An Existing Franchise?

The simple truth is this….Sunbelt is the undisputed largest business broker in the world.  The only reason we got so large is because we are successful in our core mission of helping people buy and sell existing businesses.  Our status as a business broker is further enhanced by our Franstop national franchise re-sales program.  This program is specifically geared toward helping franchise business buyers reach their goal to buy an existing franchise.  Since Sunbelt / Franstop is the recommended business broker for more than 80 franchisors, we have hundreds of franchise businesses for sale at any given time.   We are a true super store for franchise buyers who are looking to find a franchise business.

Why Should a Buyer Believe A Broker’s Estimate of Price?

After all, the broker works for the seller.  Therefore, doesn’t the broker want to get the highest price possible for their client?   Not exactly. While Sunbelt Business Brokers do typically work for the Seller, they also know the one universal truth about franchise business resales…both buyer and seller have to agree in order for a deal to get done (and for the broker to earn a paycheck).   Thus, the Broker Estimate of Price is a realistic view of what we believe is a logical selling price point, not a pie-in-the-sky, hope-it-sells-for-this price.   The Estimate of Price is most often based on the historical performance of the franchise unit being sold, and current re-sales market trends including comparable franchise re-sales within the same or similar brands.   This analysis gives the buyer confidence they are not overpaying, and gives the seller confidence they are not leaving money on the table.

Why Does The Franchisor Need to Approve the Buyer of a Franchise Re-sale?

One of the assets a buyer purchases in a franchise re-sale is the license to operate the franchise (and utilize the brand name, systems, etc.).   Thus, a franchisor has to protect their interest by validating and approving each and every franchisee. Lets face it, not everybody is cut out to buy an existing franchise business.  By putting each franchise re-sale buyer through their typical franchise buying process, the franchisor tries to ensure a high success rate for the overall franchise business.

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