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Investing in an Existing Franchise

By: Bill Bradley


In a sense, all franchise business opportunities are existing businesses. No one is going to believe you if you say that you’re opening a Little Caesar’s or 7 Eleven start-up; the whole point of a franchise is that the business is already successful.

But there is a difference between starting a new location of a franchise and taking over one that is already operating. Both options have advantages and potential disadvantages.
An existing franchise…
  • You can expect to have revenue immediately. If the franchise is operating today and you take ownership tomorrow, you can expect to have income from day one.
  • You get the goodwill of the location as well as of the corporation. If the previous owner sponsored a local team, poured money into marketing during the first year, or welcomed the 3rd shift of a local factory when they got off work, you’ll reap the benefits.
  • You may have experienced employees, a suitable location, and approved stock from the beginning.
  • You’ll also suffer from the mistakes of the first owner. Find out why he or she is leaving the franchise, or why the franchise ended the relationship. That way you’ll know what you’re up against.
  • If there are drawbacks to the location, you’ll experience the effects—on the other hand, you’ll also know what they are from the start, and you can develop a strategy for coping with them.
  • You can’t have the franchise just because the current owner wants to sell it to you. The franchisor still has final say, in most cases, and you usually will have to meet financial requirements regardless of the deal you make with the current franchisee.
A new franchise…
  • You’ll be doing it the franchisor’s way, of course, but within those limits you will be doing it your own way. You won’t have the elements the current franchisee has overlaid the system with.
  • You can choose your own staff. You could let all the workers go when you buy an existing franchise, but it’s hard to think of a faster way to make yourself unpopular. You’ll also have to hire and train new workers, in most cases.
  • You can choose the perfect location.
  • You may have a brand-new building with all the most current elements. Not every franchise requires a build-out, so this may not matter in all cases. In some cases, though, it could matter a lot.
  • You won’t have revenue from day one. You won’t have profits for a while, either. You need to plan for the time between deciding to open the franchise and the time when you begin to make money.
  • You’ll have to build up buzz about your new business and you’ll have to do the grand-opening marketing. Many franchises will provide some support with this.
Either option can lead to success. If you plan to be an executive franchisee, investing money but not much time, an existing franchise will probably suit you better. If you like the idea of building a business from the ground up, a new franchise location may be more your style.
This article was originally published by America’s Best Franchises
Published: November 25, 2014

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Bill Bradley

Bill Bradley

Bill Bradley is founding member and CEO of America’s Best Franchises, LLC.  Bill founded three financial services firms, Ocean Shores Ventures, Denali International and William Bradley Enterprises. In addition, to launching America’s Best Franchises in 2005, Bill orchestrated approximately 20 private equity transactions in excess of $31 million, and launched five specific purpose private equity partnerships.

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