How a Franchise Agreement and a Franchise Disclosure Document differ
There are two documents that are of vital importance...
As you search for a franchise, you may have noticed existing locations already for sale in Canada. A franchisee may decide to sell their business for many reasons, including retirement or poor store performance. Before you decide to invest in an existing franchise instead of getting a new location, here are the potential downsides and upsides of doing so.
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The common downsides
All businesses have risks, even a franchise location that is already up and running. While the downsides below should not immediately stop you from buying an existing franchise, they are areas you need to explore further before you make your final choice to help reduce your risk and exposure.
- A higher price: A successful, already-established franchise location may cost a lot more than one you started yourself. Granted, it can also come with faster revenue streams, but that may not work in your situation.
- Hidden problems: Typically, a franchisor is involved in a franchise resale, which should offer you some guidance. However, you need to discover exactly why the franchisee wants to sell. Are the profits too slim? Does the location or brand have a poor reputation? Is it nearly impossible to find employees?
- Management change: Change in any business can be difficult at times. Employees and even customers may resist the change in management at the location. You need to have a plan in place to combat the potential loss of customers and workers.
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The typical upsides
A pre-existing franchise can be a great way to enter the franchise market. If everything is above board, there are many benefits to investing in an established location.
- Smoother financing: Even though you may need more financing than you anticipated, it is often easier to get when you have a business with an established history.
- Faster opening: Unlike a new location, the seller of the franchise already has it up and running. For a home-based brand, this means the operations and processes are already in place and running smoothly.
- Existing customer base: When you are starting from scratch, you need to build a customer base for revenue. With an existing location, that revenue stream is already there and just waiting for you to grow it.
- Proven market: When you invest in a current franchise that is successful, the market has already been tested for you.
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Of course, you still need to look into an existing franchise before you invest, just as you would to buy a brand-new franchise. Even if the location seems absolutely perfect, you never know just what your own due diligence could uncover.
