What to know about becoming a franchisee through the purchase of an existing unit
Preliminary research into franchise business ownership quickly alerts entrepreneurs to the particulars of opening a new location. However, along with the wide variety of opportunities that the franchising industry offers, there are other avenues to purchasing a franchise unit of one’s own. This includes the art of the franchise resale.
Franchise Canada spoke with Ryan Picklyk, CFE, senior director of Strategic Partnerships and Franchising with A&W Food Services of Canada to learn more about franchise resales, what they are, how they function, and what prospective franchisees should know as they look into the opportunities available to them.
So, what exactly is a resale?
When an existing franchise location is looking for new ownership, a resale opportunity may become available. In these cases, a new franchisee can purchase the unit, which is already up and running, and take over the operations. Rather than building a business from the ground up, they’re jumping into one that’s already been established.
The process begins when a current franchisee decides they’d like to sell their unit, and each owner’s reasons for doing so are different. “I think the biggest reason that operations come up for sale is just sort of ‘stage of life,’” explains Picklyk. “Maybe they’ve finished their franchise agreement, maybe they’re onto their second, or they’ve just been with the business for quite a while and it’s a matter of deciding to retire and move on.” They may have multiple franchises and decide to sell some of them, or maybe they’ve decided to sell them all—it depends on the individual.
Picklyk notes that sometimes people get into the business and decide that ultimately, it just isn’t for them, and a resale may happen very early in the process. “From my experience, those tend to be rare. We do a lot of work with new franchisees to ensure fit and for the most part, when a franchisee comes into the business, they recognize that it’s a long-term investment of time and money; they’re not looking to get out and flip it.”
At the end of the day, it’s about making sure that the franchise is in the hands of the franchisee who’s best fit to the run the operation.
The resale experience
Buying a franchise through a resale comes with both benefits and challenges. Although, at the end of the day, you’re still part of the same system as all the other franchisees, no matter which door you enter by.
With a new site, the brand and the franchisee are projecting what the business will be, Picklyk explains. But with a resale, there are fewer unknowns. “In the case of a resale, we know the business, we know what’s going on there today,” he says. The franchisor has an understanding of how the business is performing, and the prospective franchisee can review the financials and visit the business.
“The process for us is to ensure the buyer is a fit–both as a franchisee and a fit for the business that exists today.”
When it comes to the general requirements and daily tasks of running the franchise, they’re the same regardless of whether it’s a resale or a new build. One of the biggest draws of franchising is that you’re given access to a proven system and a business model that’s been carefully planned, tried, and tested. As such, the valued skills and expertise are consistent across the entire system, and it’s important that both the franchisee and the franchisor put in the work to ensure a proper fit.
For franchisees, the research process may look different when considering a resale opportunity, though it functions to the same end: is this the right opportunity?
“I would encourage anyone considering [buying] resale to go spend time in that business,” advises Picklyk, “to go observe what customers see and just try and get a feel for what’s going on.” While all prospective franchisees are encouraged to take a look at operating locations and to speak to current and past franchisees about their experiences, buying a resale means you get a unique chance to look into the exact unit as it operates today.
Another benefit can be the speed in which a franchisee gets to enter the business. The franchise is already built and active, so “all you really need to do is make sure that you can get trained and ready to operate the restaurant. You don’t have to wait for, in our case, a shopping center to be developed or an A&W to be built. You can get into the business much quicker.”
Picklyk adds that “oftentimes you have an established team that knows how to run the business. So when you’re coming in new, that could be a real asset. You’ve [also] got a group of guests that know your business and rely on you.” In these cases, a franchisee doesn’t necessarily need to worry about crafting a new team or a place in their community from scratch. Instead, it’s about getting everyone reacquainted with the franchise as it falls under new ownership.
As for the costs of a resale franchise in comparison to a new build, it depends on the circumstances. “It’s all relative to the success of the restaurant that you’re buying,” says Picklyk. “There are times where they may cost more than a new build. There are other times where it may cost less, particularly if it’s something that needs a little bit more TLC … There’s an opportunity sometimes to get in at a lower value and then the result is typically a bit of work to build the business back up, but that can be a really, really great model to come in with.”
Further considerations
If you find the concept of a franchise resale intriguing, there’s some information you may want to consider as you look deeper into the option.
For starters, Picklyk advises that all prospective franchisees “use the experts that you have in your community, in your orbit. Talk to an accountant, talk to a lawyer. There’s going to be some documents that are obviously going to be required through the transaction. There’s going to be financial statements that can give you a really good picture of what’s going on in the business.” He also recommends talking to the franchisor about the training available and to the seller about the type of transition plan that would be in place.
While a resale opportunity avoids the time associated with a full build out, the business won’t be ready overnight. “[Resales] are complicated transactions at times and as straightforward as they may seem, you’re transitioning [a] business from one person to another and a team of people to a whole new manager and leader. And if you’re coming into the business brand new, there’s a lot involved in the transaction … So a bit of patience is important too.”
The Canadian Franchise Association (CFA) can also be a helpful resource for anyone looking into a resale opportunity, Picklyk notes. Resources are available at cfa.ca and FranchiseCanada.Online, and the CFA’s supplier directory can help you connect with the professionals you’ll need to advise you along the way.
At the end of the day, the decision to purchase a resale or new build franchise depends on you, the prospective franchisee. Picklyk says, “I think it really just comes down to: what are your needs out of that entry process?”