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Fra nchise advice


Taking the reins


With a fra nchise resale, the buyer will already have an idea of what to expect in terms of cashflow. But is it suitable for you? Roz Goldstein explains


f you’re thinking of buying a franchise, remember: new isn’t always better. Have you considered


buying an existing franchise? The sale and purchase of an existing franchise is commonly called a franchise resale. This is becoming an increasingly popular choice for prospective franchisees in the UK. But is it the right option for you?


What is an existing franchise? An existing franchise refers to a territory or unit that is already owned and operated by another franchisee. The franchisee can sell the territory, with the franchisor’s agreement, as part of a franchise resale. By contrast, a virgin territory, or greenfi eld, describes a new franchise site or location where the franchise hasn’t operated before. There are pros and cons to both options. However, if you’re new to franchising, buying an existing franchise has certain advantages, such as: Ÿ An established customer base Ÿ Cashfl ow from day one following completion of the sale


Ÿ An experienced staff team. Current employee contracts will be transferred to the buyer under the Transfer of Undertakings (Protection of Employment) Regulations 2006


Ÿ An established brand and reputation within the territory


Ÿ Existing contracts and relationships with local suppliers


Ÿ A low-risk and high-return potential that appeals to lenders helping you


secure the fi nance needed to run your business


These are just a few of the benefi ts of purchasing a resale over a new greenfi eld site. Importantly, an existing franchise comes with stability and cashfl ow, which means you can focus on developing the business.


"An existing fra nchise comes with stability and cashflow, which means you can focus on developing the business"


The legalities of buying an existing franchise


Feeling tempted? Buying an existing franchise is an exciting, yet complex journey. Here are some of the legalities to help you navigate the process…


Due diligence It’s up to you as the buyer to adequately investigate your target business. This research stage is especially important when buying an existing franchise, as you’ll need to investigate the seller and the franchisor’s business performance. If you fail to do so, you could be lumbered with legal issues later. Key areas of investigation include: Ÿ What are the franchisor’s


expectations of you? As a prospective franchisee, you will have an interview with the franchisor. They must approve the sale


Ÿ Does the franchisor have a strong track record? Compare their best and worst performing franchises


Ÿ Is the franchisor a member of the British Franchise Association (bfa)? The bfa sets the standard for franchising in the UK and is an indicator of quality


Ÿ Is the franchise business profi table? Obtain information about current fi nancial performance from the franchisee and franchisor


Ÿ Why is the seller selling? Ask lots of questions! Discuss the reasons with the franchisor and current franchisee


Ÿ What do customers think? Read online customer reviews. Is there an established customer base or heaps of complaints?


Ÿ Is it a growth industry? However much you love the product or brand, you need to be realistic about its long- term prospects


Ÿ Is it a saturated market? A product that’s popular with customers may mean stiff competition for you as a franchisee. Who are your competitors?


Seller warranties You have the right to ask the seller for warranties about the business. These warranties should confi rm that the franchise has been properly run and managed. The associated document


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