When you buy a franchise, consider the pros and cons of choosing a new or existing business.
Congratulations, you’re almost there! You’ve decided to buy a franchise and know what franchisor you’d like to partner with. The question now is which type of franchise location should you buy – new or existing? There are pros and cons for both opening a new franchise business and assuming ownership of an existing location. While you may already have an idea of which path you’d like to take, it’s important to research the advantages and disadvantages of each before you lock yourself in. Keep these considerations in mind when you buy a franchise to make sure you’re getting the best possible deal and potential return on investment.
Buying an Existing Franchise
One of the biggest advantages of buying a franchise is the brand equity you get from the moment you open your doors. A good reputation can go a long way in getting a head start on a loyal customer base. Purchasing an existing franchise location takes that a step further since you are essentially buying a fully operational business complete with an established cash flow and trained staff.
This approach allows you to bypass the headache of finding a site, negotiating a lease, building out the property, securing inventory and creating vendor relationships. Aside from any nuances you want to introduce, the business is already up and running, saving you time and possibly money. Purchasing an existing business directly from a franchisee rather than the franchisor can provide more leeway to negotiate price, fee structure and terms.
Keep in mind, you must still perform due diligence and thoroughly research before you buy a franchise to ensure that it is a profitable business with a track record of success. Being in good standing with customers and a solid bottom line are essential.
Don’t assume a struggling franchise is a fixer-upper that you can turn around. A downturn in the industry, a difficult location, competition, or a host of other possible extenuating factors beyond your control could be the cause. A business with a tarnished reputation is another uphill battle that is wise to avoid. Ownership has its own challenges and struggling from the beginning isn’t the best path forward to achieving success.
Investigate why the current franchisee is looking to move on and find out how many franchisees have owned the location you are considering. A constant revolving door of owners is a red flag. Also look at the overall closure rate for the
entire franchise network. If more locations are closing each year, it could be a sign of a poor organization that should be avoided.
Starting a New Franchise
Although opening a brand-new franchise business does carry more risk, it could also lead to bigger profits and greater rewards. You will be responsible for procuring financing, securing a location, purchasing equipment, hiring staff, and developing a marketing strategy. Even with the brand equity inherent in buying a franchise, it will take time to cultivate a loyal customer base. This involves a lot of hard work at the beginning but allows you to start your business with a clean slate free of any negative impressions created by the former owner that could deter customers and make earning a profit more difficult.
While existing franchise costs can be more flexible, buying a new franchise may turn out to be less expensive. Purchasing an existing successful business can come at a higher price for the “goodwill” value of the existing cash flow and customer base. Although a fantastic asset to have, it may not be one you can afford. Opening a new franchise business location will require more work upfront, but the money you may save and the opportunity to make your business your own right from the start could be worth it.
When you buy an existing franchise location, you may have to buy the store as-is and not be able to make any improvements to it for some time. In some industries having state-of-the-art, highly efficient equipment is imperative to the success of the business. When you buy a new franchise location, there’s a greater likelihood of securing new or at least newer equipment and facilities.
The Right Choice Depends on You
Buying a franchise is a big investment that requires a significant amount of research to ensure you’re selecting not only a profitable franchise, but the right fit for you. Whether to buy a new or existing franchise business depends on your personality, preferences, and business goals. If you have a higher risk tolerance and feel it’s important to start at the beginning so you can put your mark on the business right away, a new franchise location may be the best option. If you’re looking for an established location where you can keep an already good thing going, buying an existing franchise could be your best bet. There is no right or wrong answer, the right choice depends on you.