Growing a Franchise
Joe Braier, CEO of Lake County Advisors, explains how franchise resale marketplaces work and what buyers should consider when evaluating an established business.
Buying an existing franchise can offer some advantages over starting a new location, but finding the right opportunity takes research. A franchise resale marketplace can help connect buyers with owners looking to sell, giving prospective franchisees a way to explore established businesses that already have customers, employees and a history of financial performance.
A franchise resale marketplace allows owners to list their existing locations for sale. Prospective buyers can then look for an established business to purchase instead of starting a new franchise location.
Joe Braier, CEO of Lake Country Advisors, has advised on lower- to middle-market mergers and acquisitions involving franchise businesses. He said resale marketplaces serve several purposes, including helping existing franchisees sell their businesses and giving prospective owners access to established operations.
"A resale marketplace provides franchisees with an outlet to achieve liquidity if they wish to sell their business. It facilitates the transition of ownership within existing operational businesses, and it allows potential buyers the opportunity to purchase an established franchise unit that has demonstrated demand," Braier said.
These marketplaces can also be useful to franchisors. By looking at what existing locations sell for, brands can gain a better understanding of how their franchise units are valued in the market and how individual businesses perform within the system.
One of the biggest draws of purchasing an established franchise is that much of the groundwork has already been done. Instead of hiring an entire staff and building a customer base from scratch, a buyer may be able to take over an operation with those elements already in place.
Buyers also have the advantage of being able to review the business's financial history. Instead of relying on projections for a new location, they can see how much revenue the existing franchise has generated and how it has performed over time.
Braier said these advantages can reduce some of the uncertainty that comes with launching a new business.
"Established franchises typically provide the buyer with significant amounts of operational continuity. This includes historical revenues, trained employees and an established base of customers. All of these items reduce the amount of risk associated with executing a plan for the first time," Braier said.
There is a trade-off, however. A buyer taking over an existing location inherits many decisions made by the previous owner. That can leave less room to shape the operation than someone might have when opening a new business.
Past financial performance is important, but it doesn't tell the whole story. Buyers also need to understand what they're taking over and whether the business is positioned to continue performing under new ownership.
Braier recommends looking closely at the franchisor's requirements for transferring ownership, along with the quality and consistency of support the brand provides. The location's lease deserves attention, particularly how much time remains and what could happen when it comes up for renewal.
Staffing is another consideration. An established team can be an advantage, but buyers should understand how stable that workforce is and whether key employees are likely to remain after the sale.
The local market matters, too. A franchise may have a strong history of sales, but changes in competition or customer relationships could affect its future performance. Braier said the brand's reputation in the area and the relationships the previous owner has built with customers can be just as important as the financial statements.
For buyers, the challenge is determining how much of the business's past success can realistically continue after ownership changes.
For franchise owners who are ready to sell, a resale marketplace offers a way to reach prospective buyers interested in taking over an existing business. That can help owners turn the value they've built in their locations into proceeds from a sale.
Franchisors can also learn from the sales taking place across their systems. The prices individual locations command help show what buyers believe those businesses are worth.
The franchisor also has a say in who takes over a location and whether that person is a good fit for the business. Buyers need to know what the brand requires before committing to a purchase.
Whether you're buying or selling, understanding how a franchise resale marketplace works can help you make more informed decisions. Here are three things to consider before moving forward:
A franchise resale marketplace can provide access to established businesses, but a listing is only the starting point. Understanding the operation behind the asking price is what helps buyers decide whether the opportunity makes sense.
For more information on evaluating an existing franchise before making a purchase, check out these related articles on 1851 Franchise:
Sign up for the 1851 Franchise newsletter to get our biggest stories before everyone else
By signing up, you agree to our user agreement (including class action waiver and arbitration provisions), and acknowledge our privacy policy.
