It is often overlooked by entrepreneurs that they need not purchase a franchise from the franchisor in order to own one. Millions of franchisees and companies manage and own multiple franchises throughout the U.S. and around the world but opt to leave the business for a variety of reasons. Franchise owners (franchisees) tend to leave their businesses when they retire or move to another city, as they are no longer able to serve as hands-on managers/owners. Franchise purchases are no exception; there are always positives and negatives to consider.

In order to clearly convey the good, the bad, and the ugly of an existing franchise, this article was structured as if it were a SWOT analysis that would be conducted by an acquisition firm before buying it. A SWOT analysis is a useful tool for identifying a business' strengths, weaknesses, opportunities, and threats. A SWOT analysis, typically used in strategic planning, will be used to evaluate the advantages and disadvantages of buying an existing franchise.

Strengths

If you were to buy a franchise from the franchisor, what are the advantages and disadvantages of buying an existing franchise?

  • The location or business is well-known to customers.
  • Cash flow from the very beginning.
  • Currently working. Does not require hiring.
  • You can get help from your employees.
  • An attractive lease with many years remaining.
  • Franchise fees shouldn't be paid, despite paying a transfer fee.
  • Fixed assets are priced appropriately in the market.
  • A company's reputation can be used to its advantage.

Weaknesses

Are there any weaknesses or challenges a buyer may face in purchasing an existing franchise?

  • The lease may not turn out to be as good as originally thought.
  • Perhaps retraining your staff will be necessary.
  • A franchisee had a bad reputation.
  • You may need to restore a spotty or poor reputation.
  • The departing owner may be missed by customers.

Opportunities

Is there anything you may not get if you buy a new franchise rather than an existing one?

  • Increasing sales and customer base are essential to increasing profits and profitability for a new franchise buyer.
  • In some franchise types, expanding products and services may be an option for attracting new types of customers.
  • You can learn a lot from franchise sellers. Sometimes the seller has your best interests at heart.
  • You can make this company more successful by applying your proven business skills.

Threats

When purchasing an existing franchise, how can the buyer avoid possible threats or dangers?

  • There is a possibility that the seller's financial records are inaccurate. Expenses and revenues may have differed from what was reported, and expenses may have been higher than reported.
  • Your business may not be as compatible with you or you may not enjoy it as much as you thought. Your workload may exceed your expectations.
  • Some of your customers can be disintermediated by new competitors gaining a foothold in the market.
  • A recession or inflation might affect the economy unpredictably.
  • Regulations or laws can negatively affect a business.

Summary

Business owners and franchisees can benefit greatly from existing franchises, which provide a number of advantages. To make a successful investment, however, you need to do your homework and work closely with qualified business and legal advisers. Take these steps:

  • Examine and comprehend carefully:
    • If the property is leased.
    • Agreements for franchises. The original franchise agreement has probably been changed.
  • Make sure you read the Franchise Disclosure Document (FDD) thoroughly to ensure you are familiar with the franchise, the franchisor, and their history. The franchisor has now become your business partner.
  • Create a five-year business plan and financial forecast.