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Buy An Existing Franchise VS Start A New One

3 Reasons To Buy An Existing Franchise VS Start A New One

A franchise can be a great option for many entrepreneurs, due to the support, marketing, processes and procedures, and training that a franchisor offers. Not to mention having a well-recognized household name can be a natural draw for clients and customers. If you desire to own and operate a franchise, you should consider finding an existing one to purchase, rather than starting one from scratch. Here are the top 3 reasons why.

1. Initial Franchise Fee Has Already Been Paid

The initial franchise fee that a franchisee pays when starting up a new franchise location can be a substantial chunk of change, and depending on the franchise, it can range from $10,000 to well over $100,000. If you start a new franchise, you will be responsible for paying this fee, which is a significant investment of capital. Entrepreneurs who purchase an existing business that is a franchise bypasses this big fee, because the original owner has already paid it. It is important to note that the franchisor will most often require a franchise transfer fee when the franchise is sold to a new owner. This fee can range in amount as well, but it is normally just a fraction of the initial franchise fee paid, normally a few thousand dollars to $10,000+ in certain cases. The best part about the transfer fee is that, most of the time, the question of who pays this fee is negotiable. Normally the buyer does pay it, but we have seen the seller cover it, and we have also done deals where buyer and seller split the cost. 

2. Construction Build-Out Is Complete

In addition to the initial franchise fee, a major cost of a new franchise start-up is the construction build-out of the new location. The research on choosing the ideal location has been done and the expense and headache of a construction project has been handled by the previous owner. It’s common knowledge that construction costs, whether commercial or residential, very often exceed the original budget, and unexpected costs and expenses commonly arise before job completion. When you buy an existing franchise, none of these issues are yours: the hard work of supervising a construction project and paying more and more just to get the job done are in the past. You get to walk into a beautiful turn-key, ready to go business. 

3. Earn Revenue On Day One

With a new franchise, you pay all the costs upfront and have to wait an average of 6 months before the business is ready to open its doors. You have to set up the business, be trained by the franchisor, find a location, negotiate the lease, find a contractor, supervise the construction build-out, get fixtures and fittings in place, bring in inventory, hire and train employees, market the launch of the business, and get the business ready to open. Then it takes months to years to build up clientele or a customer base that generates enough income to just break even. Then you have to focus on growth so that the business can become profitable. When you purchase an existing franchise, most of all of that work and effort has already been done for you. There are customers, employees, and most importantly revenue coming in. In most cases, the day you close on the sale of the business, you will be earning revenue because the business is already fully in operation. There is no waiting for sales to start coming in. The hard part has been endured and you get to come in, take over where the previous owner left off, and elevate the business to the next level.