You can be on Entrepreneur’s cover!

The Pros and Cons of Franchise Resales Buying a ready-made business comes with some perks -- and possibly obstacles.

By Jeff Cheatham

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

For those looking to go into business ownership, franchising offers plenty of advantages over starting an operation from scratch. Thanks to proven business models, training and ongoing support provided by the franchisor, entrepreneurs can establish their own operation with less risk. It's been established that there are roughly three ways to go into business by yourself: you can start from scratch and build a business from the ground up, pursue a franchise concept or explore the possibilities that come with buying an existing franchise operation — which might lessen the overall risk of small business ownership even more. For those considering the purchase of an existing franchise — or resale — here are some pros and cons to consider when investigating the existing business marketplace.

Related: Preparation Is the Key to Franchise Resales

Pro: inheriting an already successful operation

With everything already in place — including operations, systems, staff and vendor/supplier relationships — you can skip the onboarding process. Getting a franchise operation off the ground and running it is no small feat, and hopefully the business will have surpassed the current owner's breakeven point. There's no site selection options to consider, leasing terms to negotiate and — best of all — possibility of inheriting an already existing customer base.

Con: inheriting a mess

When giving franchise resales the initial once-over, it's unclear precisely what you may be inheriting. While all of the aforementioned advantages paint a pretty picture about a successful business, it's also possible that it's anything but. For all you know, the current owner might not have done an adequate job running the franchise. Perhaps the walk-in traffic needed to support the franchise hasn't materialized enough to hit breakeven numbers. The business could conceivably be in financial trouble, and the sale was just an opportunity for the owner to bail out of a financial mess. Which brings us to the one question that must be asked above all else: why is the current owner looking to sell? Regardless of the answer you get, never fail to request and examine the books behind the operation. If the current owner isn't forthcoming with the operation's financial performance and information, you can probably guess the reason why.

Related: What's Old Is New Again for These Two Resale Franchisees

Pro: the selling price is always negotiable

Because you aren't buying a franchise for the first time, you won't be responsible for the franchisor's initial franchise fee, which, in most cases, is non-negotiable. An existing operation is already down the road, but still responsible for meeting the terms of their monthly royalty payments. As a prospective buyer, you can make your own reasonable offer. However, as with any negotiation, the final sale terms are often up to the seller.

Con: the selling terms may not be favorable

Before you can get to a specific dollar amount, you'll need to find out about the current owner's existing obligations with the franchisor. Does the franchisor get the first right of refusal to buy back the business? Do they intend to? Do your due diligence as it pertains to the existing franchise agreement and find out whether those terms will also be applied to you as the new owner. The fees and terms for a resale, including fees and royalties, could actually differ extensively from the original deal. Get the specifics on transfer fees, any costs related to your orientation as the new owner and any prerequisite training required. Don't forget to factor in the cost of any improvements needed to keep the franchise operation running.

Related: 5 Reasons to Buy a Successful Business Instead of Starting a New One From Scratch

Pro: built-in customer base and reputation

Assuming that the current franchise owner has done a decent job marketing the business, you might be inheriting a built-in customer base and an operation with a great reputation. If the business is in a favorable location, and has met the expectations of the local target market, stepping into a resale opportunity could be a walk in the park. Reviewing the franchise owners' financial records should be enough to determine the level of success. If you don't have to hit the bricks on day one to generate customers, it could be smooth sailing.

Con: overcoming a bad reputation

If the establishment did not meet the expectations of the local target market, you could be facing an uphill battle that could be difficult to turn around. Bad reputations, even if the establishment is under "new management," may not be enough to right the ship. You'll want to do some validation, not just with other franchisees in the system, but possibly the customer base as well. Spend as much time as necessary to get a read on the establishment's online reviews. Five stars – no problem! Less than three stars? Gulp. As Jerry Seinfeld used to say, "…good luck with alllll that."

Related: Taking On An Existing Business? Take This Advice To Heart.

Jeff Cheatham

Founder and CEO of Creative Content

Jeff Cheatham is the founder and CEO of Creative Content, a full-service copywriting and public relations firm. He's based in Dallas and works with multiple B2B clients and over a dozen franchise brands to develop proprietary content campaigns for lead generation and sales development programs.


Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Growing a Business

Successful Brands Use These 4 Radical Practices to Attract Loyal Customers

If you're ready to foster true customer loyalty and propel sustainable growth, it's time to embrace radical transparency across your organization.

Business News

A 3D Printer Used By Microsoft, Ford, and NASA Is Now Commercially Available — Here's What It Can Do

Formlabs is a 3D printing company now worth $2 billion. It started as a Kickstarter campaign.

Business News

Red Lobster Is Reportedly Considering Filing for Chapter 11 Bankruptcy

The seafood chain has gone through a slew of different private owners since it was established in 1968.


Save 20% on This Restaurant Gift Card

Treat a client to a meal without taking time out of your schedule.

Side Hustle

This Flexible Side Hustle Is Helping Millions Earn Extra Cash — and Might Be 'More Attractive' Than an Office Job

Side hustles remain popular for additional income — and have many questioning the 9-5 model altogether.