Looking For a Franchise? Consider Purchasing an Existing Franchise

Should you’re pondering of buying a brand new franchise, you could wish to contemplate buying an current franchise. Statistics point out that, on common, a typical enterprise adjustments possession each 4 years. Franchised companies are part of this universe, and research undertaken by the enterprise brokerage business report that franchised companies comply with the identical sample.

The Buy of an Present Franchise Enterprise can provide Distinct Benefits over a Begin-up Franchise Operation:


  • The present income stream of an current franchise has worth and gives a bonus versus a model new franchise.
  • Generally, a brand new franchisee brings a degree of enthusiasm and creativity that may translate into added gross sales.
  • A franchise resale is already geared up and in operation.
  • Shopping for an current franchise can save time and will get monetary savings compared to beginning up a brand new franchise.
  • The value of a franchise enterprise may very well be the identical and even lower than the funding necessities for a start-up franchise; since folks promote for numerous causes, together with private or monetary elements, there could also be a great alternative obtainable at a below-market value.
  • For many who search a franchise in a specific geographic space, a franchise resale could also be an choice in circumstances the place new franchise territories are restricted.
  • There’s a sturdy chance that an current franchisee promoting his or her enterprise will provide purchaser financing.


Discovering Present Franchises for Sale:

Since franchisors have a proper of first refusal for the sale of an current franchise, the franchisor will likely be notified when a franchisee intends to promote. Should you’re occupied with a particular franchise program, contact the franchise division to point your curiosity in buying an current franchise. Most franchisors favor not working firm owned areas and like to have a database of potential consumers. Some massive franchisors have franchise resale web sites.


  • If you are interested in a particular space or territory, you would communicate with the present franchisee and point out your curiosity in shopping for a franchise. Should you’re uncomfortable asking the franchisee, use a 3rd social gathering.
  • Search for enterprise listings in native newspapers. Particular person homeowners and enterprise brokers will typically checklist a enterprise within the enterprise alternative part of their native newspaper
  • Go to enterprise web sites which checklist enterprise on the market. There are a selection of web sites that checklist franchise companies for resale.
  • Contact native enterprise brokers and/or go to their web sites. Fyers Franchise Franchise brokers who characterize franchisors might also have franchise resale listings.


The vendor of an current franchise is obligated to pay the enterprise dealer a fee on the transaction. The customer typically has to pay the switch price to the franchisor, which can be buried within the buy value.

The promoting value is often an necessary concern in any franchise resale. Enterprise brokerage skilled Tom West, proprietor of the Enterprise Brokerage Press, has discovered that the bigger franchise companies command a promoting value that’s roughly 10-20% increased than comparable unbiased companies. Smaller or newer franchise programs might have an issue with franchise resale’s, which might preclude franchisees from acquiring an affordable value for his or her enterprise.

The tactic generally utilized by enterprise brokers to position a worth on a small enterprise is the discretionary earnings or discretionary money technique. This technique depends on recasting the revenue and loss assertion, in order that your complete vendor’s discretionary money (“SDE”) is uncovered.

This contains depreciation, proprietor’s wage, and all non-recurring and non-operating bills. Different bills are thought of to be private or not really essential to the enterprise.

The full of these things is then added to any internet revenue proven by the enterprise. Clearly, a internet loss determine can be subtracted from the whole. The ensuing determine is the money that’s obtainable to the enterprise proprietor for use at his or her discretion.

The time period “Discretionary Earnings” has been outlined by the Worldwide Enterprise Brokers Affiliation (IBBA) as an alternative choice to phrases akin to Proprietor’s Discretionary Money and Proprietor’s Money Circulation. The IBBA definition for discretionary earnings is as follows:

As soon as the precise proprietor’s discretionary money has been recognized, a a number of could be utilized to that quantity to reach at a valuation. Most small companies promote for two to 2.5 instances this quantity.

Within the case of a franchised enterprise, some valuation fashions use a a number of or a p.c of annual gross sales. It is necessary to collect info relating to market values for comparable companies.

Performing Due Diligence

As soon as you’ve got recognized a franchise enterprise on the market, established a purchase order value and met the franchisors {qualifications}, the following step within the course of is to conduct your due diligence.

Along with the standard due diligence concerned within the buy of any enterprise, buying an current franchise presents different concerns. Not like a model new franchise, an current operation has obligations and commitments together with leases, vendor accounts and franchise obligations. Make sure to make the most of your legal professional and accountant within the due diligence course of.

Following are some Vital Gadgets to Embody in your Guidelines:


  • Are there any excellent franchisor obligations? This might embrace a required transform, which the client may inherit.
  • While you signal a brand new franchise settlement, will the royalty, franchise time period, territory or different key provisions stay the identical? Has there been a rise within the promoting fund contribution, which is not mirrored, within the present financials? Make certain that key provisions of the franchise settlement you may signal are in comparison with the settlement the franchisee is working underneath to establish any adjustments.
  • Are there sufficient years on the lease to guard the worth of the placement? Location could be essential to future success. Conversely, a franchise which has not carried out to its potential might require a change in location.
  • Have there been adjustments available in the market or territory? Search for any current adjustments within the territory or market that might affect revenues. There’s a vital distinction between a franchise working inside a robust market space versus one that’s underneath siege from different franchisees and rivals.


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