Typically, we think of franchisors as people who come up with company ideas and then sell franchising rights to others. The acquiring franchisees operate their units independently (within the model created by the franchisor). Some franchisors, on the other hand, have company-owned stores that the main office controls and operates.
For a variety of reasons, franchisors own storefronts. Starting a franchise business is one the best idea for a new entrepreneur.
They may use their locations for product testing or simply be extremely profitable outlets for the franchisor. They are lone rangers in certain circumstances, operating in an untouched market. The franchisor may also sell the sites to potential franchisees on occasion.
Consider the motivations of the franchisor for a franchise sale.
There’s a reason why a franchisor would sell a company-owned website. It’s also crucial to comprehend the franchisor’s motivation:
- Geographic focus
A franchisor may be expanding into new territory and does not want to be responsible for a perfectly wonderful location that is too far away. - Profit:
A healthy franchise may still give a franchisor more revenue through fees than a company-owned site. - Liquidity
A franchisor may be working on a project that requires a significant amount of finance. - Expansion
If a franchisee opens more units in a region and expands the brand’s reach, they may be able to secure a better bargain on a company-owned franchise. - Unloading
Unexpectedly, a franchisor may become the owner of a franchise. It could be for a variety of reasons, ranging from legal issues to a lack of fee payment. When a franchisee sells, the franchisor may seek the right of first refusal to buy the unit and then run or sale it, depending on the franchisor’s present aims.
Inquire with the franchisor about the previous operations of the units and the reasons for their sale. Understanding a franchisor’s motivation will assist you in making an informed purchase decision.
What’s in it for you, the franchisee?
There are numerous compelling reasons to explore (and perhaps pursue) re-franchised locations.
- More self-assurance– Instead of estimating sales and profitability for a location that does not yet exist, franchisors might give financial data from an actual operation. When you have facts, it is easy to feel more secure and certain about future performance before investing.
- Increased profit- Buying an existing business gets you up and running faster than opening a new one. Employees already exist and are familiar with the brand, and customers already exist. When compared to a new location, ramp-up time is shorter and profitability occurs sooner.
- Financing is simpler- Lenders prefer lower-risk loans with a track record over new business prospects. You will profit from easier funding of your operating reserves.
- Lease terms that are favorable- If the franchisor owns the land, the acquiring franchisee may be able to get a better lease. If the land is also for sale, it could be an additional investment that pays out in the long run when it sells.
- A richer history- Prospective buyers have access to the history of a company-owned unit that was previously franchised (previous owners, reasons for ownership change, financial data). This circumstance may require more inquiry, but the location’s history and contact with previous owners provide more information for your selection than a new unit sale would.Conclusion
Each re-franchised location will have its own history to learn about. Investing in a company-owned franchise could be beneficial and profitable, as re-franchised units often have several advantages over new locations. Before investing in a franchise business, it is worthwhile to inquire about franchise locations that the franchisor may have for sale, regardless of which franchisor you choose.
