Everything you need to know to make this important decision for your new franchise
by Karen Stevens
One of the biggest early decisions each new franchisee faces is whether to purchase a franchise resale location or build a new store from scratch. Both options have their advantages and drawbacks, and understanding these factors is an important part of making an informed decision. So, which should you choose? Below we’ll explore the benefits and challenges of buying a franchise resale location vs. building a new location to help you make an informed decision.
Buying a franchise resale location
Buying a franchise resale location means you’re purchasing an existing franchise outlet or business that is already established and operational. Instead of building a new franchise from the ground floor, you’re taking over an existing franchise unit that is already up and running.
So, should you buy a resale location? The answer isn’t a straightforward “yes” or “no”; The decision should be based on individual circumstances, goals, and risk tolerance. Here are some benefits and challenges to consider as you make your decision.
Benefits:
- Established brand recognition: Taking over a franchise resale location allows you to tap into an existing customer base and benefit from the established brand recognition. This can save you significant time and effort in building customer awareness and loyalty.
- Proven track record: Resale locations often have a track record of sound financial performance and operational success. This information provides valuable insight into the business’s potential profitability, making it easier to assess risks and make informed investment decisions.
- Trained staff and infrastructure: A resale location might come with trained workers and existing infrastructure, such as suppliers. This can help you avoid the hassle of hiring and training new employees and setting up operational systems from scratch.
- Faster start-up time: Buying a resale location typically means a quicker start-up process compared to building a new location. With an existing facility, plus permits, licenses, and a lease already in place, you can focus on other aspects of running the business.
Challenges:
- Higher initial investment: You may need a larger upfront investment to purchase a resale location compared to building a new location.
- Limited flexibility: Existing locations may come with established practices, procedures, and physical layouts that limit your ability to customize the business to your preferences. This lack of flexibility can be challenging if you want to run the franchise in a specific way.
- Potential hidden issues: While resale locations may have a proven track record, there is always the risk of hidden problems that might not be immediately obvious. These issues could include declining sales, market saturation, or maybe a negative reputation with the local customers.
Building a New Franchise Location
When you buy a franchise in a new location it means you have to build your franchise from the ground up. You’ll go through the site selection process and conduct thorough market research to find the right place to open your franchise (some franchisors help with this). Then, you’ll have to do all the legwork of construction/renovations, hiring and training staff, and marketing to the new area. Here are some benefits and drawbacks to consider.
Benefits:
- Customization and branding: Building a new franchise location allows you to design and customize the space to align with your vision, branding, and target market. This flexibility provides an opportunity to create a unique customer experience that sets your business apart.
- Lower initial investment: Compared to acquiring a resale location, building a new franchise location can often be more cost-effective. You have greater control over the construction and design process, which can enable you to find more cost-efficient solutions and negotiate better terms with contractors and suppliers.
- Market selection: Building a new location allows you to choose a market or location that aligns perfectly with your business goals. You can assess factors like demographics, competition, and market potential, ensuring your business is strategically positioned for success.
Challenges:
- Longer start-up time: Constructing a new location involves a more time-consuming process than acquiring a resale location. You must navigate land acquisition, planning and zoning regulations, construction permits, and other bureaucratic hurdles. This can delay the opening of your business and potentially impact revenue generation.
- Uncertain performance: Unlike a resale location with a proven track record, a new location is more uncertain. It may take time to establish brand recognition, build a customer base, and fine-tune operations. This unpredictability poses a greater risk for entrepreneurs.
- Operational challenges: Building a new location requires meticulous planning and project management skills. Coordinating various contractors, suppliers, and construction timelines can be complex and stressful. It requires careful attention to detail to ensure everything is executed smoothly.
Buying a franchise resale has both advantages and disadvantages. The main advantage is that you’re acquiring an existing business with a known history, which can reduce the risk compared to starting from scratch. On the other hand, there could be specific reasons why the current owner is selling, and you need to investigate these thoroughly to avoid inheriting any underlying issues.
Remember, as with any significant investment, it’s crucial to seek professional advice from franchise accountants, lawyers, and business advisors to ensure you’re making a sound investment. Understanding the current state of the business and having a clear understanding of the franchise agreement and responsibilities is vital for a successful franchise resale acquisition. By carefully weighing these benefits and challenges, you can make an informed choice that aligns with your longterm business objectives.
Want to hear firsthand from franchisees who have purchased through a resale? Visit FranchiseCanada.Online to find franchisee resale success stories!